Tractor industry to witness moderate growth in FY14: ICRA

ICRA- Tractor industry update

Volumes in the Indian Tractor Industry are expected to expand by 5 percent-7 percent in FY14, says rating major ICRA in its latest release on Indian Tractor Industry. Growth estimates could be revised upwards, contingent on the timing and spatial distribution of 2013 monsoons, and its impact on the Kharif crop.

ICRA maintains a volume CAGR of 8-9 percent for the tractor Industry over the next five years as long term drivers continue to remain favourable. Government of India (GOI) remains committed towards rural development and agri-mechanisation; besides other factors like scarcity of farm labour, healthy credit availability, moderate penetration and shortening replacement cycle, continue to encourage demand for tractors.

While tractor sales declined as much as 3 percent in FY13, growth across different parts of the country was pretty un-even. Central region, comprising of Madhya Pradesh and Chhattisgarh was at the fore-front with 36 percent YoY sales growth in FY13, albeit on a small base; while Northern region, the largest tractor market of the country reported steady 10 percent growth. In contrast, South and West saw sharp volume contraction of 27 percent and 23 percent respectively, during FY13. Inter-play of growth variation across regions also impacted the market share of tractor manufacturers cited ICRA in the report. FY13 was a challenging period for original equipment manufacturers (OEMs) as they dealt with receding demand, and industry over-capacity. Tractor manufacturers however maintained pricing discipline by not resorting to aggressive discounting, and this enabled them to maintain their profit margins in the face of falling utilisation levels. Among key players, market leader M&M was able to increase profitability, in spite of volume declines, supported by cost control initiatives and price increases to pass on cost inflation.

Indian tractor industry has started the year strong with robust 31 percent YoY growth in sales in Apr-13, followed by healthy volume growth in May-13 as well. This volume recovery stands out in a backdrop of ~4 percent decline in volumes during Q4FY13, and virtually flat sales in Q3FY13. Recent buoyancy in tractor sales is a result of festivals like Gudi Padwa and Navratra falling in April, instead of March in the previous year; positive sentiments in farming community from a near-normal monsoon forecast for the current year; besides build-up of channel inventory by some market participants. Further, regions in South and West are also showing initial signs of turnaround, after witnessing flagging sales growth over the last five quarters.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.