Indian Tractor Market Update : July 2013
According to ICRA (http://www.icra.in/) Tractor Industry in India is expected to expand by 5 – 7 % in terms of volume during the current financial year FY14. If we consider the Q1 (Apr-Jun’13) of FY2013-14 as an indicator, the growth estimates would needs to be revised upwards, maybe even as high as ~20%. The monsoon 2013 arrived on time and has been excellent so far, which, for Indian farmers means, half the battle is already won. Expectations of yet another bumper crop in the Kharif season are doing the rounds.
For the time being, ICRA maintains a volume CAGR of 8 – 9% for the tractor Industry, over the next five years. Long term drivers continue to remain favourable. Government of India (GOI) remains committed towards rural development and agri-mechanisation. Besides other factors like scarcity of farm labour, healthy credit availability, moderate penetration and shortening replacement cycle, continue to encourage demand for tractors.
While tractor sales declined by 3% in FY13 over FY12, growth across different parts of the country was pretty uneven. Central region, comprising of Madhya Pradesh and Chhattisgarh was at the fore-front with 36% YoY sales growth in FY13, albeit on a small base; while Northern region, the largest tractor market of the country reported steady 10% growth. In contrast, South and West saw sharp volume contraction of 27% and 23% respectively, during FY13.
In FY14 the direction seems to be extremely positive. Madhya Pradesh, Chhattisgarh along with Rajasthan continue to lead the growth in the market while Northern states are also growing steadily. Even though these are still early days to say this but if Q1 of FY14 is any indication, even Maharashtra and Andhra Pradesh seems to be turning around this year which will be a very positive indicator for Tractor market.
The inter-play of growth variation across regions during FY13 impacted the market share of key tractor manufacturers. FY13 was a challenging period for original equipment manufacturers (OEMs) as they dealt with receding demand, and industry over-capacity. Tractor manufacturers however maintained pricing discipline by not resorting to aggressive discounting, and this enabled them to maintain their profit margins in the face of falling utilisation levels. Among key players, market leader M&M as well as Escorts Limited were able to increase profitability; M&M saw some volume declines while Escorts Limited volume growth remain stagnant during the year. The Tractor manufacturers were supported by cost control initiatives and price increases to pass on cost inflation.
In terms of HP segment, the bulk of tractors sold in India still continue to be in the 30-50HP segment. Huge number of small & marginal farmers (owning less than 2 acre of land) in India hold a promising potential for growth of small HP segment (less than 20HP). Similarly significant number of high end farmers who have been using tractor for long period of time now, are expected to mature and upgrade to higher HP tractors, as they start using tractor for application which required more powerful tractor. The premium tractor segment of 50HP and above is also expected to grow, in line with the global trends in mature agriculture markets. But both these segment contribute just about 11% as of now. No change in their contribution in 2012-13 over 2011-12.
Indian tractor industry has started the new financial year with a big bang – strong 31% YoY growth in sales in Apr-13, followed by extremely healthy volume growth in May-13 & June-13 made the Q1 of FY14 the highest grossing quarter in the history of Tractor industry in India.
Volume recovery in Apr-Jun’13 quarter stands out even more significantly in a backdrop of ~4% decline in volumes during Q4FY13, and virtually flat sales in Q3FY13. Recent buoyancy in tractor sales is a result of festivals like Gudi Padwa and Navratra falling in April, instead of March in the previous year; positive sentiments in farming community from a normal monsoon forecast for the current year; pent up demand due to low growth in the previous quarters. This indicate a very healthy outlook for the FY2013-14. A 20%+ growth in the tractor market during 2013-14 would compensate for the decline in the market in the previous financial year; the long term CAGR for tractor market would continue at ~9% as estimated by ICRA and various other expert.
Most critical element in this growth story are the South & West regions which are showing signs of turnaround, after witnessing flagging sales growth over the last five quarters, coupled with the phenomenal growth in central region (Madhya Pradesh and Chhattisgarh) this indicate a very exciting picture for the Tractor market in the coming quarters.
State assembly elections are coming up in 2013 for the states of Madhya Pradesh, Chhattisgarh and Rajasthan. Maharashtra and Andhra Pradesh & General Election are due in 2014. There is also a possibility of early general elections for Indian Parliament. All these factors also indicates increase in rural expenditure and pro-farmer sentiments, which are good for Tractor market growth in India.
- ICRA sees greener pastures for tractor sales this fiscal (news.in.msn.com)
- Zetor unveils 65-year history of its tractors (praguepost.com)
- Kubota Fourty Years Strong (greatplainskubota.wordpress.com)
- M&M to roll out 5 new tractor variants in 2013-14 (thehindu.com)
- Garden Tractor Daze back for 2nd time this weekend (wiscnews.com)
- Zero emission fuel-cell tractor coming to U.S. (reviews.cnet.com)