Punjab Tractors, the country's second-largest tractor manufacturer, is planning to leverage its financial strength to maintain the inventory with its dealers at 10,000-12,000 units.
The company, which has the highest profit margins and lowest production cost, will keep two months inventory of its entire range of six tractors with its 350 dealers. Punjab Tractors had sold 31,872 units during April-December this fiscal.
Most other companies are not financially sound to maintain such high inventories, especially since the credit period in the industry could be as high as 45-60 days. The move, as per Punjab Tractors' marketing strategy, is aimed at giving "full support to its dealers in their endeavours".
Yash Mahajan, managing director said, "I do not see the need to bring down our dealer inventory from around 10-12,000 tractors. We will give full support to our dealers, in view of the change in market dynamics, to help them in their endeavours. Currently, the despatches are low and our dealer outstandings are high, but they are manageable."
"Over the next five years, we are planning to increase our market share to 25 per cent, currently 20 per cent, with a 1 per cent increase year-on-year," he said.
Mahajan, however, said that Punjab Tractors would not merely "park tractors" with dealers to inflate their billings. "Also, we have never charged interest to dealers," he said.
Punjab Tractors' strength, Mahajan said, is its low production cost, at just Rs 14,000-15,000 per tractor towards employee costs, factory overheads, sales and marketing expenses, and interest burden. This is much lower than the Rs 35,000-40,000 that other manufacturers have to bear on the same overheads, Mahajan said.
In the first nine months of the current fiscal, the company registered a profit before tax of Rs 114 crore, with margins of 16.5 per cent, he said.
Industry players have pegged the dealer inventory level at a 1 lakh units. This, according to analysts, is unusually high for an industry which might sell only around 2 lakh units by the end of this fiscal. The tractor industry, with 13 players in all, is thus far the most competitive segment of the automotive industry.
