Vendors plan investments as tractor sales pick up

The performance of tractor companies in the first quarter of the current financial year has revived the spirits of small and medium players

Yogesh Sagar, owner of a small company in Mohali that supplies components to tractor manufacturers, recently added scaffolding and formworks units to supplement his business, because tractor manufacturers were not giving him sufficient business.

Another SME player in the northern region diversified into the packaged water business — he did not want to put all his eggs in the same basket in the wake of sluggish demand from tractor makers.

With sales stagnant, tractor component suppliers have had a difficult time in the last two years, and many of them have tried their luck in other ventures.

But the performance of tractor companies in the first quarter (April-June) of the current financial year has revived the spirits of small and medium players.

“The revision in the minimum support price of foodgrains and the pro-active approach of the government to raise agricultural productivity to match the requirement of the proposed food security bill has created good sentiments for tractor sales,” said Navin Minglani, a component supplier to HMT Tractors.

The scarcity of labour and the consequent increase in wage rates has also persuaded farmers to opt for mechanisation, he added.

A S Mittal, vice president of International Tractors Limited, Hoshiarpur (Sonalika Tractors) said that the company clocked a growth of 30 per cent in the April-June quarter of 2012, over the corresponding period of last year.

He said that the company manufactured 48,000 tractors in 2011-12 and the target for 2012-13 is 65,000 tractors. The dip in demand due to the ban on river mining has been offset by higher demand from the agriculture sector, he added.

Sources in TAFE (Tractors and Farm Equipment Limited), Chennai, also confirmed that the company plans to make additional investments in infrastructure, and vendor upgradation will be a part of this. The company at present has 500 vendors across India.

“With the sales of tractors in India projected to increase, vendors need to expand. We raised our productivity by adopting better technologies in the past decade. I have set up a state-of-the-art foundry unit to manufacture castings for in-house requirements,” added C B Goel, a veteran in the business.

The ancillaries’ huge fixed costs (primarily the cost of land) serve as a barrier to the entry of new players. The mother units also encourage the existing network of vendors due to the rapport they have developed over a period of time.