- Education And Career
- Companies & Markets
- Gadgets & Technology
- After Hours
- Banking & Finance
- Energy & Infra
- Case Study
- Web Exclusive
- Property Review
- Digital India
- Work Life Balance
- Test category by sumit
Tractors: Greener Pastures
Pro-farmer reforms and favourable climatic conditions have bolstered the Indian tractor market
Photo Credit : Shutterstock
In 2000, media stalwart Palagummi Sainath wrote a book Everyone Loves A Good Drought. The domestic tractor industry dynamics advocate the contrary. The forecast of good monsoons has given the market holders of tractor industry a reason to be hopeful.
Hoshiarpur (around 120 km away from Amritsar, Punjab), popularly known as the Land of Saints, is now the home to the world’s largest integrated tractor plant. International Tractor (ITL), the maker of Sonalika Tractors, has built a facility that can manufacture one tractor in every two minutes. The company is hopeful that demand for tractors will grow at double digit figures boosting their growth at 20 per cent per year and the new plant will help them meet the growing demand.
Not only Sonalika, other major players are also geared up for FY18. Market leader Mahindra & Mahindra (M&M) is confident of maintaining last year’s sales momentum and achieving double digit growth.
“While the industry closed FY17 with an 18 per cent growth, we clipped at 23 per cent,” said M&M president for farm equipment sector Rajesh Jejurikar at an event in April.
Good monsoons are the reason for optimism in the sector. After facing headwinds for two consecutive years, the domestic tractor industry is back on track. Owing to good monsoon and improved sentiments, the industry grew at around 18 per cent despite demonetisation, which paralysed the rural economy. The impact seems to have eased now as major manufacturers posted impressive sales numbers in March.
The Market Scenario
The stalwarts of the domestic tractor industry are gearing up for aggressive market strategy citing the good monsoon forecast. For instance, the Rs 6,000-crore Sonalika Group has invested Rs 1,000 crore in the new plant, formed JVs with global giants and are working towards fulfilling their global ambitions and also strengthening the home turf.
In FY17, it achieved all-time high sales of 81,531 units with annual growth of 19.6 per cent. Amrit Sagar Mittal, vice-chairman of ITL, says, “Within five years, we will be able to achieve sales figure of 3 lakh tractors.” Of this 50,000 will be exported by equity partner Yanmar (Japan) to different locations under their brand. The company plans to produce an average of 10,000 tractors per month from May. The Hoshiarpur plant makes tractors as small as 20HP meant for orchard application to ones as big as 120HP Solis tractors.
Sonalika is the third largest tractor maker in the country, after market leaders M&M and Chennai-based TAFE.
M&M’s tractor plant in Zaheeerabad, Andhra Pradesh, is the second largest tractor manufacturing plant in the world with an annual capacity of 1.5 lakh units. M&M increased its market share by 180 bps to 42.7 per cent selling 2.48 lakh units in fiscal year 2017.
Like M&M, Faridabad-based tractor maker Escorts too is confident of continuing the growth momentum and improving its market share. Escorts CFO Bharat Madan, says, “If monsoon turns out normal, we expect better growth this year.” Last year, Escorts sold 62,699 units in India and exported 1,087 units, growing at 23.7 per cent and 43.6 per cent, respectively.
Abdul Majeed, partner at PwC says, “Government initiatives like doubling farmer income in next five years and writing off farmers loan is making people confident to invest in something like tractors.”
Darshini Kansara, research analyst with CARE Rating, says, “Higher allocation of credit to farmers in the Budget, coupled with higher demand by non-agri sector and positive forecast by the Indian meteorogical department, is expected to grow tractor demand by 18-20 per cent in FY2018.”
Dependency And Obstacles
India’s dependency on rainfall is explicit since about two-thirds of our farmland either lacks adequate irrigation facilities or, even worse, has no irrigation facilities. Like the productivity of edibles, which dips during weak monsoon, sale of farm equipments also go down with low rainfall. Simply, the impact of droughts can easily be ascertained by looking at the tractor sale figures when rainfall was below normal. For instance, domestic tractor sales fell by 13 per cent (at 5.5 lakh units) in FY-15 and by 11 per cent (at 4.93 lakh units) in 2015-16 due to deficient rainfall impacting the agriculture output.
PwC’s Majeed says, “Tractor sales are largely dependent on monsoon. About 70 per cent of the irrigation is done by rainfall and productivity in states such as Uttar Pradesh, Bihar, Tamil Nadu, and Odisha is heavily dependent on rain water. A below normal rainfall in these States could impact the buying pattern.”
Another factor that impacts farmers’ pocket and restrict him/her from purchasing tractors is the high interest rates charged by lending bodies. At least 95 per cent of the tractors are still financed by non-banking financial companies, which charge an interest rate of 18 per cent compared to 11 per cent charged by nationalised banks. But the latter refrains from giving loans due to fear of bad debt.
Also ailing the sector is the improper ground implementation of policies like Fasal Bima Yojna and the inability of the farmers to reap the benefit of higher minimum supporting price (MSP). This has impacted their earning and thereby, their buying pattern, be it something as small as pulses or as large as tractors.
(This version of the story changes "seconds" to "minutes" in second paragraph )