Favourable cyclical trends and better disposable income in the hands of rural customers — factors which pushed tractor sales to its highest level last year — will fail to sustain the growth trend in 2012-13.
The coming financial year is expected to see growth in tractor sales in the range of 8-10 per cent. This will be less than half the average growth the industry recorded over the last three years, say manufacturers and market research reports.
Pawan Goenka, president (automotive and farm equipment), Mahindra & Mahindra, said the growth in the next year would be the slowest in three years. “In 2008, we had an economic slowdown, where the growth was in single digit,” he recalled. “After that, we had three very good years of growth — at 20 per cent (in 2009-10), 30 per cent (2010-11) and about 15 per cent this year.”
Mahindra & Mahindra, with a domestic market share of 40 per cent, saw volumes drop by nearly eight per cent in January to 17,950 units, against 19,430 units in the same period last year. The company sells M&M and Swaraj brand of tractors in the country.
“Tractor sales have slowed down three months in a row. We were not expecting this,” Goenka said. “We expected that five months post the festive period would be slower than the first seven months. Even so, we were expecting a five-seven per cent growth during this time. Right now, the January month has been flat. So, I would say it is a bit of a concern that the industry is slowing down to almost being flat. We think February and March will remain the same between 0-5 per cent,” added Goenka.
According to market research agency ICRA, Indian tractor manufacturers will witness sales of 6.05 lakh units this financial year at a growth of 11 per cent compared to sales of 5.45 lakh units posted in the last financial year.
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Growing non-performing assets of tractor loans with public-sector banks and demand fatigue after strong sales growth during the last two-and-half years and concerns emerging over the earnings of farmers over the Rabi crop have prompted a downward outlook for the industry by ICRA.
Experts say while rabi crop output is expected to be healthy, there are concerns that a bumper output will put pressure on farm gate prices, ultimately resulting in lower-than-expected cash inflow for farmers. Some moderation in growth is, thus, likely in the coming months. Increase in input costs and a decline in farm gate prices, given the expectations of bumper harvest along with food inflation coming off peak levels, could put pressure on the profitability of farmers and affect demand for tractors, the ICRA report further stated.