Tractor firms shrug off H2 worries, hopeful of a good year

Despite a likely slowdown in sales during the second half, the tractor industry is hopeful of ending the current fiscal with growth in the range of 12-15 per cent, a double-digit growth for the third consecutive year.

After a period of robust growth (about 22 per cent) in the first five months of this fiscal, the monthly sales declined in September due to the delayed start of the festival season.

Domestic sales dipped 3-5 per cent in the second quarter this fiscal, after growing for almost eight quarters. But, volumes recovered and grew at a healthy 23 per cent in October.

Analysts expect the industry to post 8-10 per cent growth in the second half, compared with a 13 per cent growth in the first half.

“It must be noted that while a weaker-than-expected performance of the South-West monsoon is likely to lead to some moderation in demand, the aberration of a late festival season is likely to lead to a relatively small difference in volume growth between the two periods in question,” Subrata Ray, Group Vice-President, Corporate Ratings, Icra, said.

Tractor maker Mahindra has admitted that it will not see higher growth in the next five-month period this fiscal, the company maintains its 12-14 per cent volume growth guidance, with a downward bias of 12 per cent.

“Growth has been a little less than what we had expected and with the festival season being passed on to Q3,” Pawan Goenka, Managing Director, M&M, said at recent company’s investors’ call.

There has been a variation in growth across the country, driven by region-specific factors such as monsoon precipitation, financing availability and penetration.

In the current fiscal, the volume growth has been led by the eastern region.

Mallika Srinivasan, Chairman & CEO of TAFE, recently said that tractor volumes were zooming in the eastern region as the region was a beneficiary of many government welfare programmes.

The southern region has also grown at a healthy pace with Andhra Pradesh and Karnataka recording strong growth.

After outpacing the industry’s growth in FY2018, the volume growth in the northern region has remained weak in the current fiscal though Uttar Pradesh, the largest tractor market in the country, maintained a healthy volume growth (about 14 per cent during April-October 2019). Rajasthan is still struggling with falling sales and the volumes are down seven per cent this fiscal.

“In the western region, demand trends in Gujarat remain healthy, even as Maharashtra has struggled on the back of weak monsoon precipitation. Volume growth in the central region has also remained weak with the region suffering from weak farm cash flows,” said Ray.

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