Logistics

Liquidity issues, drop in crop area drag tractor sales in FY19

G Balachandar Chennai | Updated on April 02, 2019 Published on April 02, 2019

Decline in crop production coupled with weak prices have led to concern over farm cash flows and dampened sentiments   -  istock/Kyryl Gorlov

Against estimates of 12-14 per cent, the industry expects to grow in high single digits

In a jolt to manufacturers, the tractor industry’s domestic growth rate may fall short of the projected double-digit levels for FY19.

As against the guided growth of 12-14 per cent, the industry is likely to exhibit a high single-digit increase in volumes for 2018-19.

Deflating factors

Multiple factors such as lack of financing due to liquidity constraints in the lending sector, lower-than-expected rabi crop sowing and poor sentiments have impacted tractor sales during the second half of 2018-19.

Combined domestic volumes of tractor companies such as Mahindra & Mahindra, Sonalika International Tractors and Escorts have grown by about eight per cent at 5.06 lakh units for 2018-19.

TAFE’s volumes couldn’t be obtained.

Big players & numbers

Tractor market leader Mahindra & Mahindra reported a 32 per cent decline in March tractor sales at 18,446 units.

For the full year in 2018-19 its total volumes grew just four per cent at 3,16,742 units (3,04,019 units in FY18).

During the nine-month period, Mahindra’s domestic volumes grew 10 per cent to 259,243 units. However, Q4 proved to be a dampener with a 15 per cent drop at about 57,500 units.

But, Sonalika managed to post 11 per cent (95,976 units) growth and and Escorts 19 per cent (93,323 units) for 2018-19. Both the companies recorded a 22 per cent and 25 per cent increase in volumes for 2017-18, indicating a moderation in sales growth.

Pawan Goenka, Managing Director, Mahindra & Mahindra, had said that Q4 of FY19 would be flat and accordingly growth projections would be revised.

Crop output

The Second Advance Estimate of crop production for FY2019, indicated a decline.

Even as kharif crop production is estimated to be one per cent higher than the previous year, the rabi output is expected to contract by three per cent over the previous year following a drop in sowing acreages.

A decline in production levels coupled with weak crop prices have led to concerns regarding farm cash flows and has dampened sentiments, said Anupama Arora, Vice-President and Sector Head, Corporate Ratings, ICRA.

Also, channel check indicates that concerns also persist regarding the impact of unseasonal rains and hailstorms in some regions on rabi crop output and farmers in select geographies face delays in recovery of realisations for their crops, she added.

Challenging period

The tractor industry posted a 18 per cent growth at 5.83 lakh units in FY17 and 22 per cent growth at 7.11 lakh units in FY18.

So, growth momentum was expected to moderate in FY19 due to a high base.

But the second half of FY19 proved to be challenging and consequently, the overall growth for the full year has been lower than expected.

Published on April 02, 2019

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