The Hindu Business Line : Consolidation drive seen to continue in tractor industry

WITH the domestic tractor industry on a continued double-digit growth run, consolidation seems to be the buzzword for the industry this year. In fact, the year has already seen two big-ticket deals involving tractor firms, with a third one likely to be announced later this month.

In the largest deal so far, the tractor business of the Eicher group was acquired by Tractor and Farm Equipment (TAFE) for Rs 310 crore, vaulting TAFE to the number two position.

Recently, L&T had exited its tractor-making joint venture in favour of partner firm, John Deere.

Meanwhile, Japanese firm Yanmar is learnt to have picked up significant stake in the North-based International Tractors Ltd (ITL), which sells tractors under the Sonalika brand.

ITL has also roped in a private equity partner, which would be picking up minority stake in the company. The move follows ITL's joint venture partner, Renault, selling its 20 per cent shareholding in the company.

According to sources, while the private equity firm is likely to hold five per cent stake in ITL, Yanmar will hold 15 per cent.

Industry analysts said that the consolidation process will continue, primarily because of the large number of players in the market.

"The Indian tractor market has as many as 11 players competing for a slice of the market. An inorganic growth strategy would be a logical option for major players in order to increase their marketshare in a very competitive industry. In fact, the market is already abuzz with rumours of a tractor company in talks to offload equity to a strategic investor," said an industry analyst.

Second, the inorganic strategy makes sense for multinational players as it would not only provide them a foothold in the domestic market but enable them to take advantage of India's growing status as a low-cost manufacturing hub.

In fact, multinational firms such as New Holland and Same Deutz-Fahr are utilising their Indian operations to export components and tractors for their global operations.

The tractor industry recorded growth of about 30 per cent to 2,47,531 units in 2004-05, up from 1,91,673 units the previous year.

Sales have further increased by 14.5 per cent to 66,941 units in the first quarter of the current fiscal.

Going by the current trends, market analysts forecast that the industry would touch its all-time high level of about 2,70,000 units (recorded in 2000) in the current year.

Tractor sales fell from 2,70,000 units in 1999-2000 to 1,70,000 units in 2002-03. But 2003-04, helped by good monsoon, saw a revival in the industry, with sales growing by 10.5 per cent to 1.9 lakh units.

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