to Emkay, over 50% of tractor dealers have resumed
operations and have stocks in excess of 30 days, allowing them to cater
to initial weeks of retail sales. Most tractor OEMs have received permissions
for restarting plants, and are working to ramp up production levels.
The report, however, noted that there is a weakness in non-agri demand
(segments such as Construction and Mining) and selective financing by lenders
may marginally impact volume performance in the near term. In such a scenario,
tractor OEMs with captive finance divisions will outpace industry performance.
has been a loss of volumes due to lockdowns in April and May, and most of this
loss is expected to be recovered in the coming months. There are several
positive factors, including a good Rabi output, opening of procurement centers
by the government, expectations of good monsoon, etc. that augur well for
demand ahead. Overall, we expect recovery to be sooner and FY21 volume decline
to be lower in the tractor segment in comparison to other segments. We expect
the tractor industry to decline by 10% in FY21E and then, register a strong
recovery with 20% growth in FY22E, the research indicated.
the Indian tractor companies, Emkay noted that when it comes to shares, Escorts
is one of its top picks in the Automobile sector, with a TP of Rs 898. We
expect Escorts to sustain the market share in domestic tractors ahead, led by
continuation of aggressive marketing efforts, success of its dual-brand
strategy – Farmtrac and Powertrac series, and focus on network expansion.
Recently, the company has
its tie-up with Kubota Japan, which took a 10% equity stake in Escorts. Also we
remain positive on M&M (TP Rs490) due to large exposure to rural demand and
inexpensive valuations. Key downside risks include deficient or weak spread of
monsoon, delay in macro recovery, increase in competition, adverse movement in
currency/commodity prices, etc.