Tractor sales expects to grow by 12 % thanks to monsoon, declining rates

Declining interest rates, farm loan waivers by states to fuel demand

Tractor sales are expected to increase by 10 to12 per cent in the current year to around 650,000 units. This comes against the backdrop of successive monsoons and declining interest rates. Last financial year, tractor sales stood at 580,000 units, which was lower than in 2014.

The recent decision to waive farm loans by various states is expected to accelerate the growth further. Manish Gupta, Director, CRISIL Ratings, said, "While the cascade of good tidings from weather to farmer to farmer is on, there is another positive structure to note; that average tractor penetration in India is very low at 20 per 1,000 hectare. This underlines the kind of headroom for growth available over the long term."  

Maharashtra, Punjab and Uttar Pradesh, which account for more than a quarter of domestic tractor sales, have announced loan waivers, which will help in providing financial support to farmers. This, along with declining credit cost and an increase in minimum support price will support tractor sales.

CRISIL's data suggests loan waivers can also offset the adverse impact of bad monsoons on tractor sales. For example, the waiver announced by the central government in the financial year 2009 had led to 30 per cent growth in tractor sales in 2010, which was a deficient monsoon.

In the longer term, there are other tailwinds too, such as a doubling of budgetary allocation for long-term irrigation funds, expansion of crop insurance coverage, a sharper focus on mechanisation, and increasing usage of tractors beyond tilling and haulage.

CRISIL’s credit outlook for the largest tractor makers in India such as Mahindra & Mahindra and TAFE with a combined market share of 65 per cent, and supported by strong demand and healthy balance sheet, is positive. With capacity utilisation in the industry at around 60 per cent, companies can easily address surges in demand without fresh capex.

Farm equipment maker Escorts Ltd has reported a  33.4% growth in sales at  5,275 units against 3,953 in July last year. Mahindra and Mahindra domestic sales were at 17,682 units against 16,452 units in the year-ago month, up 7.48 per cent.

Mahindra and Mahindra President, Farm Equipment Sector, Rajesh Jejurikar said, "With a good spread of the monsoon followed by kharif sowing which has been greater than the previous year, we expect the positive sentiment to continue during this season and boost tractor demand."