Tractor companies may harvest a new record

Firms bet on normal monsoon, good crop output

The India Meteorological Department’s (IMD) revised forecast of a normal monsoon has brought cheer to tractor makers. Domestic tractor sales volume is poised to hit a new record of over 650,000 units, growing at double digits for second consecutive year. The growth phase had started in FY17 after two back-to-back annual decline in volumes owing to sub-normal monsoon. 

The IMD on Tuesday raised its estimate of rainfall to 98 per cent of the long period average (LPA) against 96 per cent earlier. LPA is the average rainfall received in the fifty years ending the year 2000, which stands at 89 cm. Besides the rains, other positive triggers are seen in form of record output for key crops such as wheat and higher minimum support prices (rate at which the government purchases crops from farmers). Domestic tractor sales had surged 18 per cent in FY16 to 582,000 units on a low base of 493,000 units in the previous year. The industry is gearing up for a double-digit growth in domestic demand this year, which could take the numbers to a new record of 650,000 units, surpassing previous high of 634,000 units in FY14 assuming a conservative growth of 12 per cent. Experts do not rule out the possibility of growth rate moving further to 15 per cent.

“The FY18 should be a record year for domestic tractor sales. The industry is expected to grow at double digits due to good monsoon. We are confident of growing at a rate higher than the industry,” said Raman Mittal, executive director at International Tractors, which sells tractors under the Sonalika brand and has a 12 per cent market share. The company’s domestic sales saw a year-on-year growth of  21 per cent in April and 26 per cent in May. 

Stocks of tractor manufacturers have started reacting positively. The share price of Escorts, which gets about 80 per cent of its revenue from tractors, hit a new high of Rs 767 on BSE on Tuesday. The scrip has zoomed more than 25 per cent in the last one month. M&M, the country’s biggest tractor maker, has seen its scrip rise eight per cent in the same period to Rs 1,432.75. M&M has reported 16 per cent volume growth in domestic tractor sales during the April-May period to 49,656 units. 

For M&M, the double-digit growth in tractor volumes is offsetting the decline in the passenger vehicle business, which slipped six per cent in the domestic market during the April-May period. Rajesh Jejurikar, president (farm equipment sector), M&M, said the announcement of record production estimates for major crops, coupled with higher support prices will drive positive sentiments and boost tractor demand this season. “All the indications right now point to a favourable monsoon. We hope we will have a good double-digit growth of around 10 to 12 per cent for the industry in the FY18”. 

The impact of a good rainfall will also be visible on sales of two-wheelers, cars, fast moving consumer goods and consumer durables as the rural market is significant for each of these sectors. Scrip of country’s largest two-wheeler maker Hero MotoCorp has gained over 13 per cent in the last one month. On Monday, it hit a new high of Rs 3,880 on the BSE.