Tractor makers braced to raise prices 3-3.5%

The tractor industry is headed for a price hike in the range of 3 to 3.5 per cent in the next two weeks.

Market leader Mahindra & Mahindra will announce its new prices around 2 April, while Eicher is planning its to make its announcement around March-end.

Others are observing the spiralling steel prices to figure out their pricing policy.

"The input cost of steel alone has gone up between Rs 15,000 and Rs 20,000 per tractor in the last nine to 10 months," R C Jain, president, Tractor Manufacturers' Association (TMA) and chief executive, group affairs, Eicher, said.

The industry has witnessed price hikes in the past 10 months of between Rs 3,000 and Rs 5,000 per unit, he added.

The refrain among manufacturers is that now the time has come to factor in the rise in steel prices.

Just emerging from a three-year downturn, the tractor industry finds its margins under immense pressure owing to the rising steel prices. "We have now decided to go with a price hike," K J Davasia, executive director & president, farm equipment sector, Mahindra & Mahindra Ltd, told Business Standard.

One estimate is that last year steel prices went up by about Rs 10,000 per tonne. While the government has announced some excise and customs duty cuts, its impact is seen to be too marginal to really help the industry.

"The industry has been seeing a continuous rise in its input costs, but given the market situation it has not been able to raise its prices, but now given the way the steel costs are going, a price hike (for tractors) is inevitable," Mallika Srinivasan, director, Tractors and Farm Equipment Ltd (TAFE), said.

K Ramakrishna of L&T John Deere, however, said that his company has not come to any price hike decision. "We have to see how the input costs move. At the moment we are comfortable," he added.

The Rs 6,000-crore tractor industry spent a good part of 2003 fixing its cost structure, rationalising its labour force, re-engineering, implementing wastage cuts.

"We shrunk our workforce by about 20 per cent," Davasia said, adding that they have been able to squeeze production costs by about two to three per cent. A lot of input substitution also helped snipe costs. Escorts has reportedly been working towards shrinking its production costs by about Rs 7,500 per unit.