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September 01, 2019

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 grow at a moderate pace in fiscal 2020, despite normal monsoon

 

CRISIL Research expects domestic tractor sales volumes to grow at a moderate pace and increase by 1-3% in fiscal 2020, assuming normal monsoon.

 

Below factors are expected to aid the tractor sales growth -

 

  • Expectation of fourth consecutive normal monsoons to lead to higher crop production, thereby positively impacting tractor demand.
  • Government support (Central + State) of Rs 2 lakh crores through farm loan waivers and direct farm income support.
  • Government funding towards rural development activities such as road construction, rural housing; will support commercial demand for tractors

However, a further increase in volume growth will be affected by:

 

  • Tractor subsidy sales account for ~10% of total tractor sales. Collective decision of manufacturers to not participate in subsidy schemes, largely in southern states, is expected to shave off moderate quantum of tractor volumes.
  • Also, as per interactions, inventory built up in dealer channels is as high as 50-55 days (forward looking), as compared with normal levels of 30-35 days. The excess inventory is expected to be liquidated in the first quarter of fiscal 2020, leading to lower wholesale offtake.
  • Low reservoir levels in the states which account for ~45% of tractor domestic sales
  • Government efforts to stem illegal mining, a major source of non-farm tractor demand, in a few eastern states

It should be noted that the industry could decline by 0-2% on-year in fiscal 2020 in case implementation of farm loan waivers slips. Also, If Telangana, Andhra Pradesh, Jharkhand and Odhisha slip up on implementation of their schemes, it can shave off 20-40 bps further from the tractor sales growth projection.

 

Tractor domestic industry is expected to grow by a moderate 2-4% in fiscal 2021, assuming normal monsoon.