Tractor sales set to plough a lonely furrow

High finance costs and low incomes might subdue demand for tractors

Tractor demand is likely to stay muted in the coming months, even as costly loans and lower rural incomes put pressure on farm vehicle manufacturers.

A collective drop of nine per cent was reported in January sales at 44,720 units, against 49,134 units sold in the year-ago period, according to a report prepared by Brics Securities.

The drought-like situation in Maharashtra and lack of state and central government intervention in relief efforts for farmers is expected to put further pressure on the market.

Last year, 123 talukas in Maharashtra alone were declared drought-hit by the state cabinet, while the situation this year is expected to be worse, as more than three months remain for the south-west monsoon.

"A lower increase in incomes, high finance costs and lower income in drought-hit areas are also likely to impact tractor sales. In January 2013, rains were below average, though sowing of rabi crops was normal and farm output is expected to remain within normal range," added the Brics report.

Mumbai-based Mahindra & Mahindra (M&M), with a share of 41 per cent in the domestic market, led the fall in sales at 16,402 units, a drop of nine per cent in January as compared to 17,950 units sold in the same month in 2012.

The company, which sells its products under the Mahindra and Swaraj brands, is expecting a flat-to-negative growth for the industry by March-end. M&M has six tractor plants in India and a retail base of 1,300 dealers. Chennai-based TAFE is the country's second largest tractor maker, while Escorts and Sonalika are the third and fourth largest, respectively.

Sanjeev Goyle, senior vice-president (marketing and AppliTrac), M&M, said, "January sales declined and whatever growth in February and March sales are expected will neutralise last month's fall. Overall, the Q4 sales will be the same as last year. In Q1, we are hopeful of a marginal growth in sales, but a lot will depend on the sentiment of the forecast for rains.

Maximum selling prices and infrastructure development will also have an impact on sales."

Industry demand continues to be held back by firm interest rates, high inflation affecting investment sentiment of farmers and a rise in tractor prices by domestic manufacturers. Further, demand from the non-agricultural segment remained sluggish over the past months, with no significant pick-up in construction and infrastructure-related activities.

Meanwhile, the tough economic conditions might have led farmers to downtrading of choices. For instance, the domestic market has increasingly moved towards smaller, low-powered and affordable tractors, the segment which continues to grow.

A few companies such as M&M and VST Tillers that enjoy a duopoly in the segment of tractors with 20HP and below sells, reported a combined growth of 158 per cent in the previous quarter.

Newer launches and expected pick-up in government-related schemes in rural areas is expected to push tractor volumes higher next year, compared to this year at 585,000, a growth of 4 per cent, according to analysts.

"Winter rains in India in FY13 were scattered and weak and failed to create much confidence in farmlands with most consumers likely to have postponed their purchases in anticipation of positive triggers," added the Brics report.