Good monsoon to boost tractor volumes

The domestic tractor industry is bullish on growth over the prospects of good monsoon season this year after two consecutive years of drought. The tractor industry has projected a growth of nearly 10% this year after sales had slipped by 10% during 2015 calendar.  

The domestic tractor industry had clocked sales of under 5,00,000 units in 2015 due to drought and consequent fall in demand in the farm sector. Major tractor manufacturers in India are Mahindra & Mahindra, John Deere India, Sonalika International Tractors, New Holland, Escort Agri Machinery, HMT Tractors and Force Motors.

According to rating agency ICRA, competitive intensity in the domestic tractor market remains high, characterised by increasing pace of new product  launches, greater marketing push by OEMs, introducing products addressing niche segments, and their efforts to expand into untapped geographic segments and horse-power categories. Nevertheless, market structure has remained largely similar with modest changes in market share, more linked to demand trends in specific geographies.

M&M continues to maintain its market leadership status, constituting about 38% of total industry volumes. While M&M largely sustained its market share in western and central regions, it has gained market share in the other markets, benefitting from its strong position and dealer penetration.

M&M has reported a 20.33% increase in total tractor sales at 30,191 units in the June quarter. The company had sold 25,090 units in the same month last year. M&M’s share in the tractor market has risen to its highest in several years and its sales of utility vehicles are growing rapidly on the back of good monsoon.

“The best news for our business this year is the monsoon. Given the way things are, we believe growth will continue at this pace. A good monsoon first affects tractors, followed by two-wheelers and passenger vehicles. The change in sentiment impacts business,” Pawan Goenka, executive director at M&M, said during a recent media interaction.

TAFE, despite continuing to be the second-largest player, lost marginal market shares in southern and central markets owing to increasing penetration of M&M and John Deere in these regions. While Escorts continues to lose market share as has been the case the past 3-4 years, owing to its shift in focus towards higher HP segment, John Deere, has recorded a healthy increase in market share in the current fiscal (from 5.2% in FY2014 to 5.8% in 10m FY2016), led by a robust 28% growth in export volumes.

Uttar Pradesh is the biggest tractor market in India and had clocked sales of about 95,000 units in 2014. However, last year, the market slumped by 18% due to adverse agricultural sector performance, following drought and weak rural demand.

John Deere India (JDI), the local arm of US-based John Deere Global, is eyeing an overall market share of over 10% in the next three years, against 6-7% today. The company is now looking for higher share of Indian tractor market, especially, in tractors below 40 hp. Essentially, it has been catering to market demand in the 50-75 hp tractor segment.

“We are not a significant player yet in India. But there are growth opportunities to market our products. We have market leadership in more than 50 hp category and are gaining business in 40-50 hp. We are working on our markets in 35-40 hp category. We expect the 12-15% growth to continue through this year. The tractor industry has been on the upswing in the last six months, which it expects will continue through the year. However, what will change is the technology and solutions to make the tractors in this segment more productive,” said Satish Nadiger, chief executive and managing director, John Deere India.

The company had exported 25,000 units worth Rs 2,750 crore in FY16 to countries including the US, Europe, Canada, Africa and Thailand.

The domestic tractor market has predominantly remained a medium HP market, with more than 80% of the total tractor sales being that of models in 31-50 HP range. The 41-50 HP segment continues to remain the most preferred  segment, with about 45% of the domestic sales in 10m, FY2016 being constituted by the same.

Another tractor maker, Hoshiarpur-based Sonalika International Tractors is targeting the southern markets and exports. It started manufacturing tractors in 2005 and last year overtook Escorts as India's third-largest selling tractor brand.  

The company, which has been focusing mainly in the northern and western markets, says it is now targeting to achieve a 10% market share by fiscal 2017 in the south. Sonalika ITL sold more than 50,000 tractors in the southern market and aims to be among the top-three brands in the region, with new products and an increased network of dealerships by the next year. The company is setting up the plant at Hoshiarpur, Punjab and had invested Rs 500 crore.

Pune-based Force Motors is also focusing on the tractor segment where it has a marginal market share of 1%. Currently, it is selling tractors only in seven states of India. With a focused approach, it will build volume first and then expand business in other states.

The diversified usage of tractors in local transportation and other activities helped tractor loan borrowers to partly absorb the impact of weak agricultural activities. Nevertheless, the delinquency remains high, with loans originated in the last two years showing little signs of improvement from the high level of delinquencies recorded post 2011.