Demand for tractors is robust, but supply chain troubles hit production

G Balachandar Chennai | Updated on August 13, 2020

Intermittent lockdowns, Covid-19 spread among concerns for companies

The tractor industry appears to be facing supply chain-related challenges that prevent companies from meeting the full demand in the market.

Though domestic tractor sales reported a 38 per cent increase in July at 63,137 units compared with 45,571 units in the year-ago month, they were much lower compared to 92,888 units sold in June.

While demand is robust due to favourable factors such as rise in rural income on the back of good Rabi harvest, rise in crop MSPs, healthy water table levels and easier availability of financing, tractor companies are unable to ramp up production due to supply chain issues.

Top tractor maker Mahindra & Mahindra managed a capacity utilisation of more than 90 per cent in June and July but lost some market share in Q1 due to supply constraints, the company said during its Q1 analysts call.

“This was our highest ever July sales. While the strong demand momentum continued, local lockdowns in certain States and Covid-19 related impact on specific suppliers led to supply-side challenges during the month,” Hemant Sikka, President – Farm Equipment Sector, Mahindra & Mahindra Ltd, told BusinessLine.

Escorts said the demand was significantly higher than what the company could produce. While the company achieved about 95 per cent production capacity in June, it was operating at about 50-60 per cent last week, given some challenges with suppliers of some proprietary items.

While Escorts expects to go back to full capacity by mid-August, the supply chain situation may continue to be dynamic for another couple of months.

“The biggest challenge for us is to ramp up our production. We are working in a focused manner to make sure that we do not lose any more production. The situation with those suppliers that were not operating very well in the last four weeks have become pretty much normal or is expected to become normal. So the main challenge would be supply chain for the entire industry, at least for the next three or four months — until the next peak season in October-November,” Shenu Agarwal, CEO, Agri Machinery, Escorts, said at an earnings call last week.

Overall, the industry representatives point out to two major concerns on sales — supply chain disruptions due to intermittent lockdowns and increasing Covid-19 cases in rural areas.

Published on August 13, 2020

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