Tractor industry revises growth upwards as ‘Bharat’ continues to shine amid crisis

G Balachandar Chennai | Updated on September 17, 2020

Tractor demand is expected to remain buoyant supported by positive farm sentiment, lower finance cost and better cash flows

The tractor industry is revising its growth outlook upwards to high single-digit for the current fiscal from a marginal positive rate as the rural economy remains a silver lining amid Covid-19 crisis.

During August 2020, the domestic tractor sales grew 75 per cent at 64,729 units when compared with 37,050 units in August 2019. Total production was also higher at 86,999 units when compared with 70,039 units last year.

For the first five-month period of this fiscal, tractor sales grew by 8 per cent at 294,022 units compared with 272,966 units in the year-ago period, according to the data provided by Tractor and Mechanization Association.

Double-digit growth

Most of the leading tractor makers — Mahindra, TAFE, Sonalika and Escorts — have reported double-digit growth in August volumes.

With 2.94 lakh domestic sales in 5 months, the tractor industry has achieved about 41 per cent of FY20 volumes.

Industry representatives and analysts projected a flat volume level or a marginal growth in tractors for FY21 earlier this fiscal when the country was partially lifting Covid-19 lockdown.

To their surprise, pent-up demand and strong favourable factors pushed tractor sales to a new high from May onwards. While companies faced the supply chain issues to ramp up their capacity, demand scenario remained robust.

With the improvements in capacity utilisation level of companies, tractor demand is expected to remain buoyant supported by positive farm sentiment, lower finance cost and better cash flows (higher crop yields and direct payments from the government).

“We expect rural sentiments to remain positive and translate into robust tractor demand as we move into the festive period,” said Hemant Sikka, President - Farm Equipment Sector, Mahindra & Mahindra Ltd.

Positive outlook

With a positive outlook, tractor makers are now projecting a positive high single-digit growth for FY21. In the last fiscal, tractor volumes fell 10 per cent at 7.09 lakh units.

With its highest-ever domestic growth of 80 per cent in August, Sonalika Tractors is also bullish on growth prospects this fiscal. “We are well-positioned to capitalise on the positive sentiments and continue our growth momentum by outpacing industry growth,” said Raman Mittal, Executive Director, Sonalika Group.

Rating agency ICRA had earlier guided 2-4 per cent growth in domestic tractor volumes for FY21 on account of the pandemic impact on the farming community.

While uncertainty continues to exist in relation to the pandemic, farm sentiments stayed positive, aided by healthy farm cash flows across regions, stable crop prices, supported by multiple factors.

“Our channel check pegs the percentage of farmers opting for a moratorium to be at a low of 10-20 per cent. Accordingly, we revise our growth estimates to 7-9 per cent in FY2021,” said Rohan Kanwar Gupta, Assistant Vice-President,” Icra.

Meanwhile, tractor OEMs have also been boosting production levels to ramp-up inventory ahead of the festive season and are gearing up for healthy sales for the rest of the year.

There is also positive news on the export front too as tractor exports have started growing year-on-year for the past two months – July and August.

Published on September 17, 2020

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