Tractor makers in for a shock: Demand pick up no respite; sales to still slip 5-7% in FY20

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Published: September 5, 2019 5:29:51 PM

While the ongoing slowdown has already taken a toll on vehicle sales of major car manufacturers, tractor makers may also find themselves a victim of the same as they are headed for a single-digit slip in sales in the current financial year.

Monsoon deficit, Kharif sowing season, Kharif output, NCML, export demand, Rice productionNormal monsoon bodes well for farm income and tractor demand.

While the ongoing slowdown has already taken a toll on vehicle sales of major car manufacturers, tractor makers may also find themselves a victim of the same as they are headed for a single-digit slip in sales in the current financial year. “Weak growth in rural income, moderation in rural infrastructure spending, higher channel inventory, and the effect of a high base will lead to de-growth in tractor sales volume,” CRISIL said in a report released this week. Tractor industry is cyclical and extremely dependent on rural incomes and monsoon, CRISIL added, and these factors were impacted in the second half of the last fiscal because of flat crop production, declining farm profitability which resulted in lower rural wage growth.

The agricultural equipment had also witnessed lower growth due to dwindling exports. Exports contribute about a tenth of total sales and the export sales themselves were down by 28% in the first quarter of this fiscal. CRISIL attributed this to moderation in demand from Latin America.

However, going ahead, the demand is expected to pick up in the second half of the fiscal due to sharply improved progress of the southwest monsoon in the past few weeks. Normal monsoon bodes well for farm income and tractor demand, going forward. “Additionally, the recent budget announcements for agriculture and allied activities, the loan waivers in some states and the hike in minimum support prices for kharif crops, along with rural-development initiatives of the government, are likely to push sales,” said Gautam Shahi, Director, CRISIL Ratings.

Another research report has also suggests something similar. Tractor sales are likely to revive soon in the upcoming festive season, due to normal monsoon and improved Kharif acreage. “As the country witnessed normal monsoon and there has been an improvement in the sowing of Kharif crops such as sugarcane and cotton, the demand for tractors is expected to pick up,” the Kotak report said. 

Previously, several industry leaders saw a decline in tractor sales. This includes Mahindra and Mahindra Limited which saw subdued sales on-year by 17%. According to the Kotak report, the same was driven by both domestic and export sales.

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