A well-distributed and normal monsoon, as forecast by the India Meteorological Department (IMD) recently, is expected to limit the impact of the pandemic on tractor sales volume this fiscal, said Crisil Ratings on Monday.

Despite a 37 per cent year-on-year decline in April and May combined, tractor volume will likely be barely 1 per cent below last fiscal’s level, in sharp contrast to a double-digit decline expected for the rest of the automobile industry, it said.

Lower raw material costs and strong balance sheets also bode a stable credit outlook for tractor makers this fiscal, it added.

The monsoon’s approach so far has been timely, with rains 21 per cent above normal in June to date, it noted. The forecast for July and August — crucial months for kharif crop — is also encouraging at 103 per cent and 97 per cent, respectively, over LPA, it added.

“Apart from overall adequacy, monsoon needs to be spatially well-distributed — by geography and timeliness (June-September) — to propel farm incomes and stoke demand for tractors. The IMD’s forecast is very encouraging for tractor volumes this fiscal,” said Manish Gupta, Senior Director, Crisil Ratings.

Favourable distribution of rains can even offset the adverse impact of a below-normal monsoon, such as in fiscal 2019, when domestic tractor sales volume grew a strong 8 per cent on a high base and despite the monsoon being 9 per cent below the LPA, it said. Agriculture will be supported by high reservoir levels, seen at a massive 94 per cent higher than last year and 71 per cent above the average of the past decade, it said.

The recent hike in minimum support prices for major crops by 3-8 per cent for the kharif season also augurs well for rural incomes, more so as this follows a bumper rabi crop, it said.

While the recent locust attack could still play spoilsport, it came when most of the rabi crop had been harvested, and sowing was yet to commence for the kharif season, it noted. Rural supply chains for tractors have been quick to bounce back from the lockdown, too, with more than 75 per cent dealerships having reopened. That, along with some pent-up demand from March, led to a 4 per cent growth in domestic tractor sales volume in May year-on-year, despite the impact of the pandemic, said the Crisil report.

“The operating profitability of tractor makers should remain strong at 15 per cent this fiscal. Given limited capex needs, credit profiles are expected to remain healthy, with the debt-to-equity ratio for the industry likely to sustain below 0.1,” said Naveen Vaidyanathan, Associate Director, Crisil Ratings.

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