The domestic tractor volumes
continue to chart a growth story in the current fiscal, with the volumes
expanding by 19.4% during April-February FY2018 (on a Y-o-Y basis). As per an
ICRA note, while the growth in Agriculture Gross Value Added during FY2018 is
projected to moderate from previous years’ levels, partly on account of decline
in crop yields following an uneven monsoon precipitation, the tractor
industry’s volume growth has showed no signs of slowing down, with favourable
crop cycles, on the back of two consecutive near normal monsoons, leading to an
improvement in farm cash flows.
haulage demand from usage of tractors in construction activities, as
investments in infrastructure creation picked up across country, coupled with
various Government of India’s (GoI’s) support programmes, has boosted demand to
an extent. While there continues to exist variations in growth across regions,
a majority of the regions have recorded a moderate to healthy growth in
volumes, helping the industry volumes touch a new peak (on pan India basis) in
the current fiscal.
Anupama Arora, Vice President
and Sector Head, Corporate Sector ratings, ICRA Ratings, “The GOI’s continued
thrust on promoting rural development and farmer welfare in the Union Budget
continues to augur well for the farm sector, with the budget laying significant
emphasis on the government’s endeavour to double the farmers’ income by FY2022.
The success achieved in implementation of a mechanism to ensure healthy minimum
support prices to farmers, would remain critical in helping protect the
interests of the farmers and reduce vulnerability to commodity cycles. The
focus on creating rural infrastructure through continuation of enhanced
allocation to irrigation, roads, and other infrastructure, also bodes well for
an improvement in the rural economy over the medium to long term and successful
implementation of the various initiatives is likely to result in sustainable
benefits to the farm community. This will support tractor’s demand.”
Even as an improvement in
non-farm income through deployment of tractors for commercial use is expected
to continue to support the demand for tractors going forward, the financing
availability, a key demand driver, is expected to remain healthy over the short
to medium term, led by a relative moderation in delinquencies in the asset
class for various non-banking financial institutions.
While the Indian
Meteorological Department (IMD) is yet to come out with a forecast for the
monsoon’s performance, as per early estimates, the possibility of El Nino
conditions developing in time to adversely impact the monsoon precipitation
remains low; if the forecast holds, a third consecutive normal south-west
monsoon augurs well for the farm community.
ICRA expects the tractor
industry growth to moderate in FY2019 (growth in volumes of 6-7%), given the
high base attained in the current fiscal. As the profitability of Original
Equipment manufacturers in the tractor industry remains linked to industry
demand, the operating margins for the various manufacturers are expected to
remain at healthy levels, with benefits from economies of scale on account of
expanding volumes helping offset the impact of an expected hardening in raw
material prices. In the absence of any significant capital expenditure plans,
the credit profile of the entities in the industry is also expected to remain
“Over the long term, ICRA
continues to maintain a long term CAGR estimate of 8-9% for the industry, with
the long-term industry drivers for the industry continue to remain intact. The
government of India (GOI) remains committed towards rural development and
agri-mechanization, a critical component in improving the state of agriculture
in the country. This coupled with other factors such as increasing rural wages
and scarcity of farm labour is likely to aid growth in industry volumes over
the long term,” adds Arora.
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