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The company that makes Sonalika tractors has been in discussions with investment banks for the past few months and is currently in the process of hiring banks for handling the IPO process. Photo: Bloomberg
The company that makes Sonalika tractors has been in discussions with investment banks for the past few months and is currently in the process of hiring banks for handling the IPO process. Photo: Bloomberg

Growth momentum in tractors expected to sustain in 2021

The sustained growth is seen on strong fundamentals such as robust kharif sowing now leading up to good output that is expected to generate good cash flows for the farmers

Mumbai: The robust growth momentum recorded by the tractor industry this year is expected to sustain growth during the next fiscal as well, top executives from leading tractor and farm equipment manufacturers told Mint.

The sustained growth in tractor demand for another year is seen on strong fundamentals such as robust kharif sowing now leading up to good output that is expected to generate good cash flows for the farmers as the kharif harvest season has begun, continued government support in the form of procurement and spending on agriculture and rural economy along with the high ground water levels.

Besides support to the agriculture sector, rural economy also received a significant boost on the central government’s increased spending under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) during H1FY2021.

Riding on these tailwinds, the tractor industry has reported a growth of over 40% YoY during H1FY21, according to the market leader Mahindra and Mahindra Ltd (M&M).

“We continue to witness unprecedented retail demand for tractors on the back several positive factors. Successive bumper rabi and kharif crop harvest coupled with timely procurement of crops, ensured seamless circulation of money in the rural economy," said Hemant Sikka, president, farm equipment sector, M&M.

Sikka said that while the government continues to spend on boosting the agriculture economy and rural development, good monsoons this year led to higher reservoir levels and as a result rabi sowing is expected to be good as well.

“Farmers are a lot more confident as compared to the last year which has led to positive rural sentiments," Sikka added.

Echoing similar sentiments, Bharat Madan, Group Chief Financial Officer at Faridabad-based tractor manufacturer Escorts Ltd said, “Water levels in Maharashtra and other southern markets are good due to strong rainfall this year. Therefore, the demand momentum for tractors should continue at least over the next 2-3 crop cycles. There should be no slowdown on the demand front."

However, Madan pointed out that the growth during the next fiscal may not be as strong as 40% seen during June and September quarters this fiscal.

“We saw a robust pent up demand for tractors this year as the market bounced back from a downcycle. Despite the fact that pent up demand would be over, we are expecting tractors to grow 10-15% YoY through the next year," Madan told Mint in a recent interview.

Shamsher Dewan, vice president, corporate sector ratings at Icra Ltd said initial kharif harvest and procurement data, primarily coming from Punjab and Haryana, is encouraging.

“Procurement of Kharif crop begins from October with Punjab and Haryana harvesting early. About 120 lakh tons of paddy (rice – main Kharif crop) is procured in October. This marks 13% YoY growth and minimum support price or MSP is up 3%. This would translate in up to 17% increase in farmers’ income in October alone," Dewan said.

He added that as of 20 November, Kharif procurement stood at 290 lakh tons of paddy with 200 lakh tons coming from Punjab, 55 lakh tons from Haryana, followed by 13 lakh tons and 9 lakh tons from Uttar Pradesh and Uttarakhand respectively.

Even as the Kharif harvesting and procurement will continue until January – February, Dewan said strong output would keep up healthy cash flows in the rural economy.

Meanwhile, with new product launches planned over the next quarters, the tractor and farm equipment manufacturers plan to plug gaps in their respective portfolios.

M&M recently said that it is developing new K2 series of lightweight tractors for India and global markets. The upcoming range will comprise four platforms and 37 models across various horsepower and applications.

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