Tractor volumes in domestic
market have reported a positive growth trajectory during the fiscal 2016-17 (growth
in volumes of 18.2% in 10 months from April 2016 to January 2017 on a YoY basis)
fuelled by favourable farm sentiments as southwest monsoon performance remained
healthier as compared to previous two fiscals. This was stated in a report on “Indian Tractor Industry” by ICRA.
While the monsoon performance
augured well for kharif production, it also replenished reservoir levels that
supported rabi sowing despite weak winter monsoons. The growth momentum witnessed a pause in
November, 2016, with demonetisation causing cash crunch resulting in a decline
in monthly volumes by 13% (YoY basis). After the minor blip,
however, domestic volumes have recovered, with the industry volumes growing by
8% and 6% respectively in December 2016 and January 2017 respectively (YoY
basis). In February, 2017 also, leading tractor OEMs have reported a healthy
growth in domestic volumes, pointing to continuation of growth momentum for the
Tractor exports growth, which
moderated in FY2016, remained weak during the FY2017 (2016-17) as well; the
weak demand in the global markets has led to near stagnant volumes in 10months
of FY2017. Although OEMs have continued
to take initiatives to enhance their distribution networks in various
geographies and launched products tailored for specific markets, the weak
demand in the global markets constrained export volumes.
M&M maintain market leadership; TAFE has lost market share
Competitive intensity in the
domestic tractor market remains high; although there have been subtle changes
in market share over the past few years, the market structure has remained
largely similar. M&M continues to maintain its market leadership status,
constituting 44% of the total domestic industry volumes in 9 months of FY2017.
The company has gained market share across all regions, benefiting from strong
brand recognition, financing support from captive and pan India presence. TAFE,
the second largest player, has lost market share across various markets over
the past two years, owing to aggressive product launches by competition.
Escorts, the fourth largest
tractor manufacturer in the country, has gained market share across most
regions, benefitting from enhanced management focus and improved product
portfolio post new launches. The company’s weak presence in the Southern region
has however hindered market share gains at a pan India level. John Deere, which
was the only OEM to record a growth in volumes in FY2016, has continued to gain
Sustained demand at a pan-India level; select pockets of Northern
region however continues to struggle
The southern region has outpaced
growth across all others regions on a consistent basis over the past three
years, with the growth being led by a robust demand in states like Andhra
Pradesh, Tamil Nadu and Karnataka, on account of government support programmes
and better rural sentiments which helped maintenance of growth trajectory in
some of these states even in November 2016 (in the immediate aftermath of the
demonetisation). Notwithstanding strong growth, a weak northeast monsoon with
drought like conditions across several states in the region has kept reservoir
levels low, and thus, remains an area of concern. The eastern region continues
to report strong volume growth in the current fiscal, albeit on low base,
benefitting from various government initiatives to boost farm mechanization.
There has been a recovery in
demand in the central and western regions led by improved farm sentiments on
account of estimates of improved crop production and resulting farm cash flows.
The northern region continues to lag the pan-India growth; while Uttar Pradesh,
the largest tractor market in the region, has recorded healthy growth, other
key markets such as Rajasthan and Punjab continue to struggle, as a result of
weak haulage and replacement demand respectively.
Advance estimates indicate healthy
increase in crop production; El Nino formation possibility remains a concern
The performance of south west
monsoon was healthier and relatively widespread than past few years; a healthy
monsoon helped improve farm sentiments and has led to estimates of an
improvement in crop production. After weak crop production for two consecutive
years, there was an uptick in rabi production of wheat, oilseeds and pulses in
April 2016; the Second Advance Estimates of crop production released in
February 2017 indicated a healthy increase in crop production for both kharif
and rabi seasons. If the final estimates are similar, then farm cash flows are
expected to mark a healthy improvement over previous fiscals
As per Australian Bureau of Methodology, there
is a moderate possibility of El Nino formation towards the fag end of the
monsoon season; although initial estimates have generally ruled out
a significant impact of the same on rainfall precipitation, the impact of the
same on south west monsoon and consequently crop production would remain
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