2. Short term growth rate may see moderation
- ICRA projecting tractor volumes (Domestic + Export) to slowdown in the last quarter, resulting in a volume growth in the region of 10-11% for full year FY 12. Over the longer term, maintaining industry growth target at 8-9%.
- Tractor industry has experienced strong volume growth during FY10 – FY12 (9months), despite macro-economic headwinds
- The domestic tractor market is showing some signs of weakness over the last couple of months.
|Domestic + Export||346,508||345,827||441,174||545,128||605,092||-2%||0%||28%||24%||11%|
Source: CMIE Database, ICRA estimates
- Scarcity of farm labour especially during the sowing season
- Increase in credit flow to agriculture
- Increase in Non-Agri application of tractors as in infrastructure projects
- Growth in niche power segments (<20HP and >50HP) and untapped territories; besides healthy export sales
4. Concerns areas for Tractor market growth
- Off-late there are some concerns emerging over the earnings of farmers from the Rabi crop;
- Growing NPAs of tractor loans with public sector banks;
- Demand fatigue after strong sales growth during the last 2.5 years.
5. Regional performance
- Northern region, which is the largest tractor market of the country, grew at a healthy pace during the period, benefiting from sustained replacement demand.
- Western and southern parts of the country have performed above par while the eastern and central parts have reported muted growth figures in 9mFY12
- For tractor industry the spot-light is shifting to under-penetrated market
6. The domestic tractor industry is currently in a capacity augmentation phase
- Supply-demand dynamics of the industry are expected to change with the commissioning of large manufacturing capacity in FY13.
- Sharp increase in production capacity may have a bearing on the pricing power of tractor OEMs, ultimately putting pressure on their profitability metrices.
- Even during 9mFY12, Indian tractor manufactures witnessed margin contraction in light of continued hardening of rubber and steel prices, notwithstanding price increases to offset hike in input cost as well as change in emission norms (only for greater than 50 HP category).
7. Tractor market is expected to witness polarization towards High and Low HP segments.