Tractor sales expected to post 9% growth in FY21 on demand pick-up: ICRA

tractor demand has rebounded with a robust growth in sales volumes in the past few months and the industry may post a 7-9 per cent growth in 2020-21, ICRA said

After initial setbacks due to the pandemic, tractor demand has rebounded with a robust growth in sales volumes in the past few months and the industry may post a 7-9 per cent growth in 2020-21 as against the earlier estimates of 2-4 per cent, according to a report by ratings agency ICRA.

The earlier 2-4 per cent growth projections were based on the uncertainty regarding the impact of the pandemic on the farming community, it said.

Farm sentiments are expected to remain healthy, aided by healthy farm cash flows across regions and stable crop prices, supported by enhancement government focus on procurement, the agency said. It added that based on the prevailing circumstances, the credit outlook on the sector remains 'Stable'.

"ICRA has upwardly revised its industry growth forecast to 7-9 per cent in 2020-21 from an earlier estimate of 2-4 per cent growth which was due to the uncertainty regarding the impact of the pandemic on the farming community," the report said.

According to the rating agency, while uncertainty still continues to exist in relation to the pandemic, the rural agri scenario that matters more for robust tractor demand is supportive of growth.

Domestic tractor demand has rebounded in a strong manner after initial setbacks due to the COVID-19 pandemic and the subsequent lockdown measures, it said.

"We have revised growth estimates based on the favourable rural market conditions. However, one cannot rule out the downside risk emanating from spells of unfavourable rainfall and floods leading to crop damage and supply chain disruption if any," ICRA stated in the report.

Tractor volumes plummeted significantly in March and April but have seen a strong recovery since relaxation of lockdowns in May, it added.

The agency said there has been a robust growth in wholesale and retail sales over the past few months. It added that the industry is estimated to have recorded an impressive around 72 per cent growth in wholesale volumes and around 27 per cent jump in retail volumes on a y-o-y basis in August.

Overall, the tractor Industry has remained resilient to enforced lockdowns vis--vis other automotive segments, it said.

ICRA Vice-President Shamsher Dewan said, "The strong revival in tractor volumes in August 2020 was aided by healthy rabi cash flows across regions and progress of monsoon (in line with forecasts)."

He added that original equipment manufacturers (OEMs) have also been ramping up production levels to stock inventory ahead of the festive season and are gearing up for healthy sales for the rest of the year.

As per the report, healthy monsoon precipitation across regions till date, favourable kharif crop outlook, supported by early sowing and seasonally high reservoir levels, among others, support tractor demand.

Besides adequate financing availability has also been supportive, it said.

ICRA Assistant Vice-President Rohan Kanwar Gupta said, "We have revised growth estimates based on the favourable rural market conditions. However, one cannot rule out the downside risk emanating from spells of unfavorable rainfall and floods leading to crop damage and supply chain disruption."

He added that based on the prevailing circumstances, the credit outlook on the sector remains 'Stable'.