Tractor sales to rebound in the coming months after the fall in August | Business Standard News

Expected to touch record high in FY22 but growth to moderate

Mahindra tractors,Mahindra tractors,

A steep decline of 17 per cent year-on-year in the August sales – the first in 18 months, have failed to dampen the confidence of the tractor makers and they are expecting sales to rebound in the coming months. This is despite a deficit in rainfall in some of the states. Their confidence stems from high reservoir levels, government incentives for the agri sector and a higher minimum support price.

Cumulative tractor sales at top five tractor makers including Mahindra & Mahindra, Tafe, John Deere India, Sonalika and Escorts skidded 17 per cent to 47,630 units in August from 57,727 units in the corresponding month a year ago.

The decline comes on back of last year’s high base and a drying pent-up demand. After a high paced growth seen for over a decade, the rate of growth is expected to moderate to low single digits in the coming months, but tractor sales for the full year will still touch a fresh high in absolute volume terms, according to Crisil Research.

One of the largest markets for tractors globally, India sold 900,000 tractors in FY21.The rating agency expects it to touch 930,000 by the end of the ongoing fiscal.

Hemant Sikka, President, farm equipment at Mahindra and Mahindra said a smart recovery in overall acreage of Kharif crops with most of the key crops posting acreage levels closer to last year’s sown area, despite erratic monsoon in select markets, bodes well for the tractor market. During the month, the tractor market leader saw sales decline 15 per cent y-o-y to 19997 units.

But the company is confident of recouping the volumes.”With the festive period on the anvil, which also coincides with the harvesting season, we are anticipating a robust demand in the coming months,” said Sikka.

Shruti Saboo, Associate Director, India Ratings expects tractor sales in FY22 to end with a y-o-y growth of 3-5 per cent. “The tailwind for the sector remains strong. The growth may not be as high as it has been in the past month as the pent-up demand has already been addressed but we expect the overall market to grow as the enablers are in place,” said Saboo.

Tractor sales in India have been advancing at a CAGR of 10 per cent over the 15+ years. The growth henceforth is expected to moderate, wrote Aditya Makharia, Vice President, Research, in a recent research report. He also attributes it to high penetration levels. Penetration rates for tractors have already risen to 45-50 tractors per ‘000 hectares, which is higher than the world average (~30).

Shailendra Jagtap, Managing Director & Country Manager at John Deere India said, “We are quite positive on the road ahead and expect sales to rebound in September and October as farmers are keen to purchase reliable and technologically advanced products,” he said.

The local arm of the American tractor maker, the third largest by sales, sold 7158 units in the domestic market, down 4 per cent year-on-year. A good price realisation of their crop and a curtailment in lifestyle related expenses have boosted farmer’s disposable incomes. This has augured well for tractor and farm machinery equipment, pointed out Jagtap.

After a patchy rainfall in August, the southwest monsoon is expected to perform appreciably better in September, with rains projected to be more than 110 per cent of the long period average (LPA), but not good enough to recoup the entire seasonal deficiency, the Indian Meteorological Department said last week.

Therefore, even if it rains heavily in September, it won’t cover up for the full season shortfall, but it will boost the prospects of the next rabi crop and fill reservoirs. Monsoon in August was almost 24 per cent below normal, which was the sixth driest August since 1901. It came on the back of a 7-per cent monsoon shortfall in July.

Tractor makers like Escorts, one of the worst affected in August– sales fell 27 per cent y-o-y to 4920 units, are also drawing from the high levels of reservoir and government support.

“As we enter festive season months, we see farmer sentiment strong and enquiry level building up, driven by favourable macroeconomic factors, reasonably good water level of reservoirs, good pace of Kharif sowing and continued support by the Government in agri sector,” Escorts said in a statement. Some parts of the country have faced a deficit of rainfall in July and August, and it remains to be seen how monsoon behaves in September, it added.

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