There has been a recovery in
tractor volumes across most large tractor markets with the exception of
Northern region, with a pan India growth in volumes of 13.5% during April –
July 2016 over the corresponding previous; however, the same comes on a low base
and a sustained improvement in demand remains to be seen. While agri demand has
shown signs of improvement and non-agri demand has picked up in certain
regions, the latter continues to be affected by a slow pick up in
infrastructure and construction activities across several regions, thus
constraining demand, arising for tractors from haulage purposes, noted ICRA.
ICRA Limited (formerly
Investment Information and Credit Rating Agency of India Limited) is an
independent and professional investment Information and Credit Rating Agency.
“Our interactions with channel
partners indicates and improvement in demand over the past few months. The
channel partners across various regions (barring the Northern region) are
hopeful of a healthy growth in sales going forward, pointing towards the
healthy progress of the south west monsoon. The proportion of tractors being
used for commercial purposes (road construction etc) remains significant and a
revival in haulage demand from construction and infrastructure sector remains
key in reviving the sales in the industry’, says Subrata Ray, Sr Group Vice
President, ICRA ratings.
After a sequential increase in
delinquencies for nine quarters, the delinquency levels decreased marginally in
Q4FY2016, aided by a healthier than expected Rabi crop production, that
improved farm cash flows. Notwithstanding this improvement, we note that the
delinquency levels continue to remain at heightened levels and as a result,
financiers are expected to continue to remain cautious in their lending
"As per our channel check,
financiers continue to offer curtailed LTVs in specific regions, with the
intent of only attracting customers with a better credit quality", says Ray.
ICRA believes that in the
backdrop of improving cash flows expectations for the current season following
a good rabi harvest, tractor sales would improve gradually going forward with
healthy monsoon rainfall continuing to remain critical. ICRA expects the
industry growth to remain at moderate levels with an outlook of a growth in
tractor volumes (domestic + exports) of about 9-10% in FY2017.
"The government’s thrust on
rural development, especially irrigation and crop insurance, and farmer
welfare, coupled with enhanced agri credit targets remain a positive, and would
remain critical in reviving demand in the industry", says Ray.