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September 01, 2018

Sector Report: Tractors

This report is available to users in India for ₹40,000 + applicable taxes

 

Table of Contents

 

  • Summary
  • Short term demand
  • Long term demand
  • Export
  • Competition & players dynamics
  • Profitability

 

Summary

 

Tractor sales to continue on the growth path in fiscal 2019 with normal monsoon expectation

 

CRISIL Research expects domestic tractor sales volumes to continue its growth momentum from previous year, and increase by 12-14% in fiscal 2019, on the back of an expectation of a third consecutive normal monsoon (as per IMD forecast) andfavorable farm sentiments. Favourable government announcements in terms of higher MSPs and compensation for difference between MSP and mandi prices are expected to lead to 1-3% incremental growth (this has been factored in our base call).However in case these schemes are not implemented well, it could shave off around two percentage points from our forecast for fiscal 2019. Bumper food-grain crop output has led to positive sentiments in states like Uttar Pradesh, Punjab, Maharashtra,Haryana - the major contributors to the high crop output. Further, volatile mandi prices has been a hurdle for the farmers as it had dented the profitability for some crops. However, support from the government to improve farm income has led to positivesentiments across states. Moreover, with back-to-back normal monsoons, the financial situation of farmers has improved compared to the stress faced during droughts in fiscal 2015 and fiscal 2016. Farm loan waiver announcements in key marketsof UP, Maharashtra, Karnataka and Punjab has also provided the impetus to tractor demand in these states. While commercial demand has taken a hit, with increased government regulation on illegal mining activities, continued focus on ruraldevelopment - road construction and rural electrification - has helped support non-farm demand.

 

Long-term growth of 7-9% expected

 

The long term tractor industry CAGR from fiscal 2018 to fiscal 2023 is expected to be 7-9%. The forecast also takes into account possibility of 1-2 deficient rainfall years during this period.

 

Governments renewed thrust towards improving the rural economy, via measures such as doubling farm income by 2022, increasing spend towards irrigation, and improving crop productivity by distributing soil health cards is expected to drive growthin the long term. This will also be supported by other measures like the e-NAM (National Agriculture Market), expanding crop insurance, and gradual spread of Custom Hiring centres. With growth in rural wages also decelerating, and increasingmechanization on farm fields, this bodes well for structural tractor demand growth.