 "Costly lending, drought to hit tractor demand")
A collective drop of nine per cent was reported in January sales at 44,720 units as against 49,134 units sold in the same month last year, according to a report prepared by Brics Securities.
The drought-like situation in Maharashtra and lack of state and central government intervention towards relief efforts for farmers is expected to put further pressure on the tractor market.
Last year 123 talukas in Maharashtra alone were declared drought-hit by the state cabinet while the situation this year to expected to be even worse as more than three months remain for the south-west monsoon.
"A lower increase in incomes, high finance costs and lower income in drought hit areas are also likely to impact tractor sales. In January 2013, rains were below average, though sowing of Rabi crops was normal and farm output is expected to remain within normal range", added the Brics report.
Mumbai-based market leader Mahindra & Mahindra with a share of 41 per cent in the domestic market led the fall in sales at 16,402 units, a drop of nine per cent in January as compared to 17,950 units sold in the same month last year.
The company, which sells its products under the Mahindra and Swaraj brands is expecting a flat to negative growth for the industry by end of March. M&M has six tractor making plants in the country and a retail base of 1,300 dealers. Chennai-based TAFE is the country's second largest tractor maker while Escorts and Sonalika are the third and fourth largest tractor companies.
Sanjeev Goyle, senior vice president, marketing and applitrac, Mahindra & Mahindra, said, "January sales saw a degrowth and whatever growth in February and March sales expected will neutralise the fall in last month. Overall the Q4 sales will be the same as last year. In Q1 we are hopeful of a marginal growth in sales but a lot will depend on the sentiment of the forecast for rains. MSPs and infrastructure development will also have an impact on sales."
Industry demand continues to be held back by firm interest rates, high inflation affecting investment sentiment of farmers and hike in tractor prices by domestic manufacturers. Further, demand from the non-agricultural segment remained sluggish over the past months with no significant pick-up in construction and infrastructure-related activities.
Meanwhile, the tough economic conditions may have led farmers to downtrading of choices. For instance the domestic market has increasingly moved towards smaller, low-powered and affordable tractors, the segment for which continues to grow.
A few companies such as M&M and VST Tillers who enjoy a duopoly in the segment where tractors with 20HP and below sells, reported a combined growth of 158 per cent in the previous quarter.
Newer launches by companies and expected pick-up in government-related schemes in rural areas is expected to push tractor volumes higher next year compared to this year at 5.85 lakhs a growth of four per cent, say analysts.
"Winter rains in India in FY13 were scattered and weak and failed to create much confidence in farmlands with most consumers likely to have postponed their purchases in anticipation of positive triggers", added the Brics report.