Home >Companies >News >Auto sector pins hope on good harvest for demand revival

MUMBAI: In the aftermath of the covid-19 crisis, a sizable chunk of India’s automobile industry is fervently banking on a revival in the rural economy to boost sales.

Experts hope that a good monsoon, as forecast by the Indian Meteorological Department, and a robust harvest will lead to higher disposable incomes with the rural populace which would not only boost auto sales, especially those of tractor makers such Mahindra and Mahindra and Escorts, but will also benefit others in the sector.

Shortage of labour, delay in harvesting and transportation of produce to the mandis, however, could upset this demand revival even as the Centre has allowed agricultural and related activities function, beginning 20 April.

Senior executives at International Tractors Ltd (ITL), which sells tractors under Sonalika and other brands, said they have a positive outlook for rural demand, given that agricultural activities have been allowed and farmers can begin harvesting kharif crops and then sow the rabi crops.

"A good rabi output would mean decent cash flow in the hands of farmers. The government has been working proactively to get the farmers’ produce to the mandis, although this is tricky as guidelines on social distancing do not allow too many people at one place. This slows down the trade," said a senior executive from ITL, requesting anonymity.

Thanks to record rainfall last year, farmers had a good rabi harvest and with normal monsoon rains forecast for 2020 as well, analysts expect tractor sales to grow this year despite a month of lockdown.

"Harvesting is still at its peak in key agri states like Haryana, Punjab and Uttar Pradesh. Preparation of the field for sowing of kharif (summer) crops has commenced in areas where harvesting has been completed," said Hemant Sikka - president, farm equipment sector, Mahindra & Mahindra Ltd. "A good rabi output, opening up of mandis, governments procuring from farmers, good reservoir levels etc. followed by expectation of a good monsoon, augur well or tractor demand. With adequate support from NBFCs and finance organisations, we expect tractor sales to bounce back quickly."

Rakesh Sharma, executive director, Bajaj Auto Ltd, the largest manufacturer of three-wheelers in India, warned that although good harvest and good monsoons are big positives for the economy, the recovery after a long period of lockdown will be gradual and may happen in fits and starts.

Anticipating reasonable ferrying of agricultural produce to the mandis and beyond, manufacturer of cargo three-wheelers Piaggio Vehicles Pvt Ltd (PVPL) is hopeful of rural-driven demand in the market. "We are banking on the cargo segment as three-wheelers that typically cover 80-120 kms distance would stay in demand for transporting items of essential goods," Diego Graffi, chief executive and managing director at PVPL told Mint.

According to analysts at Nomura, auto companies with high rural exposure will see some recovery in volumes. It expects volumes for two-wheelers to decline a sharp 30% in the first half of FY21 but rural support, which is 50% of demand and a low base, may lead to 15% growth in the second half of the fiscal.

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