Motilal Oswal sector of the week: Tractor industry; check top stock picks

India’s tractor industry posted a robust 9.2 per cent year-on-year (Y-o-Y) growth in Q1FY26, driven by strong momentum in the high-horsepower (HP) categories and pre-seasonal inventory buildup ahead of the Kharif cycle. Volumes reached 2.86 lakh units during the quarter, supported by favorable Rabi harvest realisations and resilient demand from key agricultural states.

 

The 41–50HP category remains the industry’s mainstay, accounting for a commanding 65.2 per cent of Q1 volumes. This segment, which grew 13.5 per cent Y-o-Y, reflects an ongoing structural shift toward higher HP tractors suitable for mechanised farming and heavy-duty operations. Simultaneously, the sub-30HP category clocked a notable 21.3 per cent growth, likely reflecting increased adoption in horticulture and among marginal landholders. Conversely, the 31–40HP segment saw a 4.2 per cent Y-o-Y decline, highlighting the waning appeal of mid-range tractors.

 

Regionally, west and north India continue to dominate the industry, contributing 38.6 per cent and 34 per cent respectively in Q1. While the west sustained its growth trajectory with a 10 per cent Y-o-Y volume rise, the north experienced a marginal 1.5 per cent contraction. South and East India rebounded sharply—growing 21.9 per cent and 27.6 per cent Y-o-Y respectively—after witnessing sluggish growth in FY25, indicating a revival from a low base.

 

This regional divergence also underscores evolving consumption patterns. West India has emerged as the largest regional contributor, up from 28.9 per cent in FY19 to 38.6 per cent in Q1FY26. Meanwhile, the south has steadily lost share—from 19 per cent in FY19 to just 13.7 per cent—despite a recovery in Q1.

 

While near-term sentiment remains positive, industry watchers remain cautious about upcoming monsoon trends and rural liquidity—both critical for sustaining demand in the remaining quarters. Structural growth tailwinds, including rising farm mechanisation, government support, and the need for efficient farming solutions, continue to support the medium-term outlook.

 

With the industry expected to grow 4–7 per cent in FY26, driven by higher HP adoption and regional expansion, tractors remain a key pillar of India’s rural economy and an important component of the agricultural equipment segment.

Stocks to buy

Mahindra and Mahindra - Target Price: ₹3,643

Mahindra and Mahindra delivered a strong FY25, driven by SUV leadership, 41 per cent Y-o-Y growth in exports, and margin expansion. Revenue rose 17 per cent Y-o-Y to ₹1,165 billion and profit after tax (PAT) grew 11 per cent to ₹118.6 billion, aided by a 140 basis points (bps) Ebitda margin improvement to 14.7 per cent. In Q1FY26, Mahindra and Mahindra outperformed the tractor industry with 10.5 per cent Y-o-Y volume growth and expanded its market share to 45.2 per cent, gaining ground across all HP segments—especially in the dominant 41–50HP category (65 per cent of industry volumes).  Regional gains in east and west India reflect deep rural penetration and effective distribution. The company targets a 7 per cent volume compound annual growth rate (CAGR) over FY25–27E, supported by new launches and rural tailwinds. We estimate 14 per cent/13 per cent/16 per cent CAGR in revenue/Ebitda/PAT over FY25–27E.