“Growth in the domestic tractor industry will be contingent on the timeliness and adequacy of rainfall during 2014 south-west monsoons. Current predictions portend a weaker monsoon on account of El Niño weather phenomenon. Spatial distribution of rainfall will also be a critical determinant; states in southern and western India are more vulnerable to the effects of lower rainfall on account of lower irrigation penetration, as against markets like Punjab, Haryana and Western Uttar Pradesh, where reliance on rain-fed agriculture is lesser,” points a report of ICRA.
After seeing single digit drop in volumes (domestic and export) in FY13, Indian tractor volumes recorded a strong 18 per cent growth at 6.97 lakh units in FY14. While domestic sales were robust, exports remained weak. Indian domestic tractor market, which is the largest in the world in terms of numbers, posted a sales rise of 20 per cent at 6.33 lakh units. Robust tractor demand was due to favourable monsoon and higher minimum support prices, resulting in good demand for tractors.
Poor growth in South…
In terms of geographic distribution of growth, all regions posted a recovery in tractor sales during FY14. Madhya Pradesh and Chhattisgarh maintained their strong growth momentum, resulting in growth of 29 per cent from Central region. Western Region also witnessed robust 28 per cent volume expansion in FY14 on back of surge in demand from Maharashtra. With healthy growth in Rajasthan and Haryana, the northern region recorded 16 per cent growth. In the South, Andhra Pradesh and Karnataka saw a revival in demand during the last fiscal, after a sharp decline during FY13; the region’s growth (15 per cent) was, however, held back by continued demand contraction in Tamil Nadu.
In FY14, M&M regained some lost market share, with increase in penetration in North and East, whereas TAFE saw some drop in its domestic market share. Further, International Tractors Ltd continued to register market share gains in FY14, notably across the all regions. Escorts, was, however, on the losing end.
Notwithstanding market share movement, all OEMs witnessed an up-tick in volumes in the previous fiscal, which also aided in healthy margin expansion. Signs of moderation in profitability are, however emerging, with introduction of discounts by market participants, and weak growth expectations, added the report.
Single digit growth this year…
Meanwhile, sales trend in the first two months have also indicated a fall to single digit though industry is awaiting monsoon to get clear signals on growth prospects for the full year. ICRA has revised its growth outlook for the tractor industry downwards to 4-6 per cent. Industry experts are also of the view that the tractor industry would settle for a single digit growth this year. M&M estimates an industry growth of eight per cent.
However, long term growth prospects are in tact. Government of India (GOI) remains committed towards rural development and agri-mechanisation. Also, other factors like scarcity of farm labour, healthy credit availability, moderate penetration and shortening replacement cycle, will continue to spur demand for tractors.