Tractor and Farm Equipment (TAFE), India’s second-largest tractor manufacturer, is expanding its production capacity across two plants — Bhopal and near Bengaluru. The company also hinted that it will recast its international strategy given the volatility, country-specific local issues and trade barriers, among others.
In an interview with FE here on Tuesday, Mallika Srinivasan, chairman and CEO, TAFE, said: “We are upbeat on the industry growth prospects as well TAFE in particular. Given the broad-based macro economic push coupled with an increased allocation towards farm sector by both central and state governments, we see the industry will grow over 7% CAGR for next five years and will cross the 1 million mark size by 2020. The domestic industry expects to end the fiscal with 12% growth to cross 8 lakh sales mark and TAFE to grow much more than the industry.”
In the first half of current fiscal, the industry has grown close to 12% to touch 410,500 units. The growth this fiscal will be primarily driven by the eastern region — states such as Bihar, Jharkhand, West Bengal, Assam — which embarked upon huge agri and infra spending. Normal monsoon too played a greater role to push sales in states such as UP, AP, Telengana, Haryana, she pointed out.
“Taking into consideration the increased mechanisation, huge infra push and increased deployment of tractors into commercial activities across the country, TAFE will be expanding its capacity by 30,000 units each at Bhopal (Eicher range) and Bengaluru (TAFE range) in 2019.
“We are running more than 100% capacity utilisation across our plants and hence we need to expand our capacities, anticipating demand to peak up in the coming years. The first phase of our expansion will be in place by March 2019 (30,000 units),” she said.
According to her, the above 50 HP segment will witness a marked impact on its growth in 2020 owing to possible sharp price increase on the back of regulatory norms. However, given the increased budget allocations by both central (9% increase) and state governments (47% increase) towards agriculture sector coupled with the higher MSP, states subsidies and broad-based macro economic growth, the industry will see a 7% CAGR over next five years on the domestic front and expect to cross the 1 million sale mark by 2020 fiscal.
“We have to heavily invest in engine and allied parts to meet the regulatory norms by 2020. Following which, the price of the product will become bit expensive and hence we see an impact on the above 50 HP segment, she added.
To a specific question on the international front, Mallika Srinivasan said: “Though exports contribute 15% to our overall sales, but given the changing dynamics, country-specific local issues, trade barriers, and volatile market conditions in some parts of the world, particularly in emerging markets, we will have to recast our global strategy. The emerging markets are stressed and we need to accept the reality and be agile and adaptable. Hence, we will relook into our global strategy.”
“Having said that, TAFE, however, sees huge opportunity in Serbia (where it acquired IMT), the US and Turkey where it has operations. IMT is an iconic brand in Serbia among other countries and has a capacity of 50,000 tractors. Similarly, Turkey operations will fully concentrate on local markets given the norms,” she pointed out.
When raised about its long association with the $9 billion US-based AGCO Corporation, she said: “We have increased our stake in the company to 15% over the years with substantial investments through our own funds into that company and we become the largest shareholder. We have been exporting aggregators, components to AGCO over the years to distribute in the US as well other countries.
“Apart from both the companies are involved in joint products development for the worldwide market. We are happy with the association and are bullish on the growth prospects.
“We expect our turnover to cross Rs 10,000 crore mark in the current fiscal with a higher profitable growth,” she added.