Robust first-quarter tractor sales bail out component suppliers

Rising demand for tractors has not only helped them to fully use their installed capacity, but also led them to expand capacity to meet demand

The robust demand for tractors in the first quarter of the current fiscal year compared to the year-ago period has brought smiles on the faces of tractor ancillaries, especially small and medium enterprises (SMEs). The increase in demand for tractors has not only helped them to fully use their installed capacity, but also led many suppliers to expand capacity to meet demand.

According to TMA (Tractor Manufacturer Association) data, tractor sales totalled 186,958 units in April-June 2013, as against 152,094 units in April-June 2012 -- an increase of 22.92 per cent.

Tractor manufacturers are highly dependent on ancillaries for components such as castings, forgings, steering, gearboxes and brake assemblies. In order to assist vendors, they are sharing technical expertise with existing and potential vendors.

Ajay Sikka, managing director, Sharp Chucks and Machines Ltd, told Business Standard, "There has been a sudden increase in demand, which has helped us to grow after witnessing a slump in the last fiscal year. To meet the demand we are expanding our casting capacity from 1,000 tonnes to 3,000 tonnes." His company is a supplier to Mahindra & Mahindra, Eicher and Escorts.

"The spurt in sales has helped SMEs who are manufacturing tractor parts. But the growth should be sustainable. We expanded in 2011-12, when there was a growth in tractor sales, but the industry witnessed flat growth in 2012-13, which affected our capacity utilisation. So we are a little cautious while expanding," said Inderjit Singh Chabbra, managing partner, Continental Engineering Works. He supplies tractor parts to Eicher, Tafe, Swaraj, Ace and Escorts.

The growth in tractor sales has helped bail out many ancillaries that make components for passenger cars. The robust demand for tractors has helped them offset losses that were incurred due to the slowdown in the sales of passenger cars.

  Saurabh Joshi, director, Joshi Auto Industries, said, "We have diversified interests in auto parts, combines and tractor parts. The slowdown in passenger car sales had affected our topline as well as bottomline. But the increase in new tractor sales as well as the demand in the replacement market has helped us maintain the topline and bottomline." His company supplies brake drums and wheel hubs to OEMs and also to the replacement market.

The credit rating agency ICRA has estimated that volumes in the Indian tractor industry this year will expand by five to seven per cent. A senior official in the tractor industry said good yields coupled with more remunerative prices for crops, timely arrival of the monsoon across the country and new product launches have propelled tractor sales in the current fiscal.

He added, "Last year, many parts of the country - such as Maharashtra, Karnataka and Andhra Pradesh - witnessed drought-like conditions, but this year, there has been good rain in these parts."