Tractor sales: Facing multiple challenges

Tractor sales broke their otherwise strong link with the monsoons in 2009. In a rainfall deficient year, tractor industry sales grew by 32 per cent for the 2009-10 fiscal. Mahindra and Mahindra, the market leader, saw its farm equipment segment revenues jump 40 per cent and profits zoom by 140 per cent, over the previous year.

Its tractor division’s margins improved by eight percentage points to 19 per cent in 2009-10. What aided this growth was that the country was just coming out of the 2008 slowdown. A big push towards rural credit disbursement, the launching of NREGA scheme and higher MSPs put higher disposable incomes in rural hands.

For the same reasons, Hero MotoCorp and Bajaj Auto were also unscathed during the 2009 drought. These two companies get 40 per cent of their sales from rural areas. Coming out of a high base in the last couple of years, the script for tractors is not the same now.

Tractor manufacturers are expected to see a growth of about 8-10 per cent in 2014-15, down from 18-20 per cent last year. Bad monsoons may hasten the slowdown. It will be a double whammy for M&M, whose utility vehicle market shares have also been declining due to lack of products in the compact SUV segment.

Motorcycle sales may also not see run away growth like in 2009. Amidst the slowdown, bike sales already picked up last year, after the plentiful rains. With Honda challenging their presence in both the commuter and executive segments, Hero and Bajaj Auto are not on a strong wicket currently either. But with urban demand for scooters going strong, TVS Motors may be better placed even with bad monsoons.

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Published on July 23, 2014
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