Tractor volumes to dip amid weak outlook; HSBC trims M&M, Escorts target

HSBC said tractor volume growth over FY26-FY28 is likely to remain under pressure due to a high base and the anticipated impact of El Nino, which could weaken the monsoon

Analysts at HSBC expect only a limited negative impact on automakers’ earnings per share (EPS) despite a decline in tractor volumes, supported by strong growth in the auto business.

 

HSBC has maintained a 'Buy' rating on Mahindra & Mahindra (M&M) with a revised target price of ₹4,150 (earlier Rs 4,250), while retaining a 'Hold' on Escorts Kubota with a target price of ₹3,600 (earlier ₹3,700), citing a subdued near-term outlook for the tractor industry.

 

The brokerage said tractor volume growth over FY26-FY28 is likely to remain under pressure due to a high base and the anticipated impact of El Nino, which could weaken the monsoon. Historically, El Nino years or the subsequent year have been associated with declines in tractor volumes, it said. 

 

HSBC has cut tractor volume estimates for M&M and Escorts Kubota by 5-7 per cent for FY27 and FY28 and now expects industry tractor volumes to grow at a compound annual rate of 0-2 per cent over FY26-FY28, compared with an estimated 21 per cent growth in FY26.

 

However, reservoir levels currently stand 24 per cent above the long-term average, which could help cushion the impact of a weak monsoon. Elevated water levels are expected to support Kharif sowing, although a strong El Nino may affect Rabi sowing later in the year.

 

The brokerage also highlighted that replacement demand is likely to remain robust over the next two to three years, supported by a nearly 16 per cent compound annual growth in tractor volumes during FY09-FY14. 

 

Despite near-term headwinds in the farm segment, HSBC believes the impact on M&M’s earnings per share (EPS) will be limited, given strong growth in its automotive business. The farm segment contributed about 26 per cent of M&M’s revenue and delivered an EBIT margin of around 39 per cent in the first nine months of FY26.

 

HSBC added that long-term penetration levels remain attractive, with approximately 11 million tractors in India, representing about 7 per cent of total land parcels and 47 per cent of eligible households owning more than two hectares of land. The brokerage sees potential upside risks from a weaker-than-expected El Nino impact or increased government subsidies.  CHECK Stock Market LIVE Updates

Auto sales outlook

Automobile retail sales rose nearly 18 per cent year-on-year (Y-o-Y) to over 2.7 million units in January, led by continued post-GST momentum, healthy rural cash flows on the back of harvest and weddings, and sustained demand visibility across freight, according to Fada. Tractor registrations rose 23 per cent Y-o-Y to 1,14,759 units in January.

 

The near-term macro setup is supportive: a growth-oriented Budget with a visible infra and agri thrust, policy continuity post GST 2.0, and rate stability after 2025's easing are collectively improving affordability, financing comfort and purchase intent, it stated.

 

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