Raring To Go

Punjab Tractors has geared itself to be at the forefront as and when there is a revival in tractor demand

The Rs 1,017 crore Punjab Tractors (PTL) is India's second largest tractor manufacturer with a market share of 18.5 per cent after Mahindra & Mahindra at 33.8 per cent. It has earned the distinction of being an industry outperformer since inception.

While the sector grew at a compounded annual growth rate (CAGR) of 7.5 per cent during 1991-2000, PTL grew at a CAGR of 14.6 per cent. Even during FY00, when the industry grew by two per cent, the company managed a five per cent growth.

However, during FY01, the company's sales have dropped almost 10 per cent, marginally above the industry's de-growth. While M&M has been the only player to have registered positive growth (12 per cent), the rest of the major players posted a substantial fall.

According to a senior company official, the drop in sales in line with the industry is due to excessive advanced delivery and over- billing practices by the market leader.

A favourable mix

According to analysts, the company's reduced dependence on lower horse power(hp) tractors has made it resilient particularly on the back of changing demand pattern.

The excise duty hike from 8 to 16 per cent for less than 30 hp tractors have resulted in a significant demand shift towards higher hp tractors. While only 12 per cent of the company's sales comes from the 25hp segment, almost 60 per cent comes from the 35hp segment, 16 per cent from the 40-50hp segment and over 12 per cent from the above- 50hp segment.

Besides, the company has also added new products and features to its old cash cow products. And this product mix has proved advantageous. As a matter of fact, for FY01, the only segments to have shown any growth were the 31-40hp and the above-40hp segment, which grew by 1.8 per cent and 1.6 per cent respectively.

Plugging gaps

Having started off with three products, namely, the Swaraj724 in the <25hp segment, Swaraj733 in the 30-50hp segment and the Swaraj855 in the >50hp segment, the company subsequently plugged the gap in its product range (the 30-40hp and 41-50hp segment) by launching the single cylinder Swaraj722 in the <25HP range, a two cylinder model in the 30-35hp segment and a three-cylinder model covering the 40-50hp range.

In the <30hp segment, PTL had a single two-cylinder model -- the Swaraj724. To have a varied portfolio, it has also launched a lighter single cylinder model -- the Swaraj722. It is also planning an upgraded version of this model by August 2001. In the medium hp segment (31-40hp), PTL's Swaraj735 contributes to over 52 per cent of tractor sales.

To capitalise on shifting consumer preferences, PTL has launched the twin-cylinder Swaraj733 model. In the higher HP segment (>41hp), PTL is further strengthening its Swaraj855 model by adding new features.

Also, to augment its presence in the higher HP segment, PTL has launched the Swaraj744 model. "This model has been approved for refinancing by the National Bank for Agricuture and Rural Development and is expected to see rapid growth in the current fiscal," says S Ramnath, analyst, TAIB Securities.

Low tractor density areas - an opportunity

The average tractor density (tractors per 1,000 hectars) in India is around 12 tractors per thousand hectares. Markets such as Punjab and Haryana are considered mature with a tractor-density of 53 and 42 respectively.

Future growth for tractors is expected to come from states where tractor density is below the country average. PTL is adding 10-15 dealers to its existing total of 333 dealers in the near future. And, almost all the dealer additions are being made in the low tractor-density markets.

For FY01, while 25 per cent of tractor sales was contributed by new models, 16 per cent came from new dealers. "In future, sales would be driven by new dealerships in markets where tractor density is lower than the country average," notes Ramnath.

Also, the comparatively high tractor-density states like Punjab and Haryana are very good replacements market. Moreover, 21 per cent of PTL's total sales were derived from replacement sales, of which, nearly 75 per cent came from these states.

"PTL is a major player in the North, and is expected to be a major beneficiary of the replacement market," points out Ramnath.

Concern

A pick up in offtake, both replacement and new sales, hinges strongly on normal monsoons. Although the meteorological department has predicted normal monsoons, the timeliness and spread will be of utmost importance.

Also, given the industry