Tractor makers eye quick turnaround amid increasing rural cheer

G Balachandar Chennai | Updated on May 18, 2020

Pent-up demand, cash flows from rabi season, good monsoon outlook seen to drive growth

Even as automakers brace for tough times amid the economic slowdown and pandemic-led disruptions, tractor makers are eyeing a quick demand recovery, thanks to several factors working in favour of the farm equipment market.

In fact, after a poor start early last fiscal, tractor demand had started to improve from December 2019 and monthly volumes were higher than the previous-year period. But the lockdown applied a brake on the growth momentum, and the tractor market fell 10 per cent to 7.09 lakh units in FY20.

However, the lifting of the lockdown across several districts in the country and encouraging initial signs on the rural front are offering some cheer to the tractor industry.

Demand boosters

While the pandemic-related impact was relatively less in the rural-centric tractor market, pent-up demand with good improvement in farm-level economics led by a robust increase in yield and stable prices, good cash flows from the rabi season, sufficient reservoir levels, positive outlook for monsoon and reasonable credit availability are expected to drive demand revival in the coming months.

While tractor sales stood at 12,456 units (including exports of 629 units) in April, tractor makers believe that 40-50 per cent of volumes the industry lost in the period between March-end and April (70,000-80,000 units) can be recovered during the June-October 2020 period.

The Centre’s initiatives for the farming community in the form of specific relief packages would help bring in momentum for tractor sales, according to Hemant Sikka, President, Farm Equipment Sectors, Mahindra & Mahindra Ltd.

Upbeat farm sentiments

Leading tractor makers such as International Tractors (Sonalika) and Escorts expect a healthy demand recovery post Covid-19 due to upbeat farm sentiments.

“Good harvest, increased procurement by the respective (State) governments and their focussed support to farming and prediction of good monsoon will enable quick revival across the farm ecosystem,” said Nikhil Nanda, Chairman and Managing Director of Escorts Ltd.

Escorts expects the tractor industry to recoup faster than the rest. Though it is a little early, the company is already witnessing pent-up demand. “We expect that this pent-up demand shall help the industry to show a growth in the June-October 2020 period,” the company management said at its Q4 investors’ conference call.

Industry analysts and tractor makers hope that financing will not be a constraint due to the increased focus of banks on the agriculture sector and poor demand in other segments. NBFCs account for about 66 per cent of tractor financing.

“Due to favourable farm economics, the level of inquiries for tractors has improved post relaxation of the lockdown in Green/Orange zones. We expect tractor volumes to recover from next quarter onwards, and probably result in industry volumes remaining flattish in FY21, impacted by supply-side issues in Q1 FY21,” analysts at Motilal Oswal Financial Services Ltd said in a note.

Published on May 18, 2020

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