Sales slump 22.5% y-o-y on high-base effect, excessrains and delays in harvesting
After hitting a historic high in domestic sales in October, the tractor industry reported a significant fall in production and domestic sales in November due to a combination of factors, while exports grew year-on-year.
The total production hit a 11-month low at 67,566 units in November this year. However, exports were higher by 49 per cent at 10,790 units compared with 7,200 units in November 2020. However, on a month-on-month basis, November 2021 export volumes were down 11.5 per cent.
Key factors behind decline
“High-base effect has definitely played a role but not production issues. There was excess rainfall in some pockets of the country and delay in harvesting also led to delay in cash accruals for farmers, thereby deferring purchases. Also, inventory in the system was higher than usual, which has also seen reasonable correction as deliveries were much better than offtake,” said Hemal Thakkar, Director, Crisil Research.
Tractor market leader Mahindra & Mahindra, which saw its tractor volumes drop 17 per cent year-on-year at 26,094 units in November 2021, attributed the de-growth in volumes to high base of last year and incessant rains in some States.
Escorts, which saw 33 per cent decline in its tractor sales at 6,492 units, pointed out that delayed harvest of kharif crops owing to late monsoon rains this year affected the rural cash flows and hence the retail demand of tractors. Industry wholesale in November was further impacted by post-season channel destocking.
The company terms this as a temporary phenomenon and believes that cash flows should start improving as soon as kharif harvest gets fully monetised.
“Rural sentiments continue to remain positive on account of good rabi sowing and high reservoir levels. Escalation in procurement of kharif crop will bring steady cash flows, which is expected to boost tractor demand going forward,” said Hemant Sikka, President – Farm Equipment Sector, Mahindra & Mahindra Ltd.
While tractor makers are confident of ending this fiscal with a marginal growth supported by recovery in Q4, industry analysts are of the view that overall domestic volumes may see a decline. “High base of last year will definitely play a role in the remaining months of this year which may make the growth look a little muted. We, however, feel that tractors will clock a minor decline in growth of about 2-6 per cent for FY22,” added Thakkar.