Tractor sales set to hit speed bumps as pandemic reaches the hinterland

Sentiments have turned negative due to the persistent rise in cases; farmers are saving cash for health-related exigencies

Tractor sales, a proxy for the health of the rural economy, are set to be disrupted as Covid-19 spreads into the hinterland. So far, the segment has remained relatively insulated from the adverse impact of the pandemic. But that is changing now as sentiments have turned negative due to the persistent increase in cases and with farmers saving cash for health-related exigencies. Tractor makers fear if the situation persists and the pandemic doesn’t recede in two to three weeks, it will mark a dry spell for them as tractor purchase, unlike cars, is linked to a season.

Hetal Gandhi, Director, Crisil Research cautions of the pandemic’s adverse impact on consumption as pandemic rages on in rural India catches in the coming days. “We feel the impact of Covid-19 will be a lot more pronounced in rural India in May,” says Gandhi.

Companies have started feeling the Covid heat. Tractor market leader Mahindra and Mahindra has a third of its dealer outlets shut and it fears a disruption in production and supply chain on account of absenteeism and Oxygen availability for industrial use.

“Supply chains are getting stretched and dealerships in many districts with localized lockdowns are non- operational. Unlike the first wave, when the pandemic hadn’t impacted the hinterlands, this time around it’s widespread,” says Hemant Sikka, president – farm equipment sector at the firm.  The walk-ins into tractor dealerships have reduced amid rising numbers of cases, he said.

Seconds Raman Mittal, executive director, Sonalika Group: “Unfortunately, this wave is going a lot deeper into our country and it’s very scary. Am not sure, how equipped is the rural health infrastructure to deal with this,” said Mittal, adding that the situation is very dynamic and it's difficult to keep track of retail outlets and whether they are open or shut. Unlike the last wave, nothing is predictable, he said. “Even farmers are scared and they will not like a salesman visiting for a purchase or closure of a deal,” he said.

On a account of a very low base of last year due to the national lockdown, April sales at most tractor firms saw a sharp year-on-year growth (see chart) Mahindra’s  Sikka said April should be seen in two phases – after and before Ram Navami, as with the sharp rise of Covid cases post festivals, the sales have got impacted.

“The only reason is Covid. Otherwise all the agri-related factors remain very positive – Rabi crop harvest is bumper, procurement is in progress and forecast for Monsoon remains positive. If we are able to bend the Covid curve in the next two to three weeks, its fine, in fact we will have pent up demand. But if it doesn’t and lasts beyond a month, it will be a concerning situation." Like Sikka, Sonalika’s Mittal too is hopeful of a quick recovery, if the virus is controlled within this month.

Crisil’s Gandhi says, the seven day moving average curve of the top 10 districts – which includes the metropolitan cities, is flattening in terms of case loads but at an overall level it still remains as high as 400,000 plus, that clearly shows the case load is moving beyond the top 10.  That will have its own impact on consumption she added, pointing out that the high number of fatalities in the second wave of the infection is higher in terms of absolute numbers.

Reflecting the impact, motorcycle sales (wholesales) dropped 40 per cent in April 2021 over April 2019 while tractor sale growth moderated to 16-17 per cent in April 2021 over April 2019. A comparison with April 2020 doesn't make sense as the Covid related disruptions had taken effect, she said.

Despite all the adversaries – a good monsoon, adequate liquidity support can help in a quick bounce back in sales, says Gandhi in the second half of the year on pent up demand. Crisil envisages a 3-5 per cent year-on-year growth in tractor sales by end of this fiscal.