Domestic tractor sales down 12% during April-Feb FY16

Analysts feel the industry would grow at 8-9% CAGR in the long term

Domestic tractor market sales continue to remain sluggish with no signs of recovery in the near term.

After declining by 13 per cent during FY15, the domestic tractor industry volumes have continued to be under pressure in the current financial year, resulting in a decline of 12.1 per cent on a year-on-year (YOY) basis in April-February FY16. However, in the long term, analysts predict a CAGR of around eight-nine per cent.

The demand in the market continues to be marred by weak farm sentiments. It is a result of stressed farm incomes on account of consecutive crop failures, a second consecutive year of weak south-west monsoon as well as only a modest increase in minimum support price (MSPs) of various crops.

Additionally, non-agri demand has remained weak and a slow pickup in infrastructure and construction activities has constrained demand from haulage purposes.

The Second Advance Estimates of crop production released this February indicated a decline in output of most kharif crops; an unfavourable kharif harvest in FY2016 points to a third consecutive season of below-par crop production.

Credit rating agency ICRA thus expects the domestic tractor volumes to remain weak over the short term with any improvement in demand being contingent on healthy monsoon rainfall. It believes tractor sales would improve gradually in the next fiscal if monsoon is normal during FY17. While green shoots have been evident in select states like Andhra Pradesh, Tamil Nadu, Maharashtra, Bihar and Odisha, the larger markets continue to witness double-digit decline in volumes, belying any hopes of a pan-India recovery.

The government’s thrust on rural development, especially on irrigation programmes and farmer welfare, in the Budget could also help improve farm sentiments. ICRA expects the tractor domestic volumes to grow at a moderate pace with an outlook of a growth in tractor volumes (domestic plus exports) of four-six per cent in FY17, with any major recovery in demand to happen over the medium term.

ICRA continues to maintain a volume CAGR of eight-nine per cent for the tractor industry over the next five years as long-term industry drivers remain intact.

Increasing exports to destinations such as Turkey and Algeria aided volume expansion in exports besides supplies to the US(by select players) till May 2015; the growth has however moderated over the recent past.

According to ICRA, M&M continues to maintain its market leadership status, constituting about 38 per cent of the total industry volumes. While M&M largely sustained its market share in western and central regions, it has gained market share in the other markets, benefitting from its strong position and dealer penetration.

The report further added, “TAFE, despite continuing to be the second largest player, lost marginal market shares in southern and central markets owing to increasing penetration of M&M and John Deere in these regions.”

While Escorts continues to lose market share as has been the case the past three-four years owing to its shift in focus towards higher HP segment, John Deere has recorded a healthy increase in market share in the current fiscal (from 5.2 per cent in FY14 to 5.8 per cent in 10-months FY16), led by a robust 28 per cent growth in export volumes.”

The domestic tractor market predominantly remains a medium horse-power (HP) market, with more than 80 per cent of the total sales being that of models in the 31-50 HP range. The 41-50 HP segment continues to remain the most preferred segment, recording about 45 per cent of the domestic sales in 10-months of FY16.

In FY16, the country saw its worst monsoon in six years, with the southwest monsoon ending with a deficiency of 14 per cent from the long period average (LPA) following a below average monsoon performance (deviation of 12 per cent from LPA) in FY15, further weakening farm sentiments.

NO TRACTION

• Domestic tractor industry volumes had declined 13% y-o-y during Apr-Feb in 2014-15
   
• The weak demand has been due to consecutive crop failures, weak south-west monsoons and only a modest rise in the minimum support price of various crops
   
• A slow pick-up in infrastructure and construction activities has constrained demand from haulage purposes
   
• ICRA expects the volumes to remain weak in the short term, barring any improvement due to healthy monsoon rainfall
   
• It estimates a moderate growth of 4- 6% in FY17
   
• In the long term, ICRA expects 8-9% CAGR for the industry over the next 5 years