Marginal pick up in India tractor sales in FY '16, says ICRA

by Autocar Pro News Desk , 29 Jun 2015


image
Given IMD's revised monsoon forecast, tractor sales are expected to grow by 2-4% in FY2016.

In its latest research update on the Indian tractor industry, ratings agency ICRA expects volumes (domestic + exports) growth to pick up marginally in FY16 (benefitting from the lower base of FY15) with likely moderation of cyclical headwinds and recovery in non-farm demand.

In view of the India Meteorological Department's (IMD) revised forecast for the 2015 monsoon and the actual rainfall and monsoon precipitation so far (till the third week of June), tractor industry volumes (domestic + exports) are expected to grow by a modest 2-4 percent. The report says that over the medium term, a volume CAGR of 8-9 percent for the tractor industry is likely to be maintained over the next five years as long term industry drivers remain favorable. 

According to ICRA, the government of India’s efforts towards rural development and agri-mechanisation along with other factors like scarcity of farm labour, healthy credit availability, moderate penetration and shortening replacement cycle continue to encourage demand for tractors.

Domestic tractor sales volume declined by 13.0 percent during FY15 due to unfavorable factors which include delayed and deficient monsoons, decline in kharif output, softening commodity prices, modest increases in MSP of major crops, lower realizations in cash crops, altered rabi sowing pattern and farm losses due to extensive crop damages due to unseasonal rainfall and hail storms in several key rabi cropping states.

Domestic tractor volumes which remained supported in H1FY15 aided by wholesale push to some extent, witnessed a slump of 22 percent YoY in Q3FY15 and 30 percent YoY in Q4FY15 in absence of any pickup in demand with farm sentiments being negatively impacted owing to dip in farm incomes because of aforesaid factors. Further, non-agri demand pull has also remained subdued with slow pick-up in pace of infrastructure and construction activity. While domestic tractor sales remained somber, export segment continued to perform well through the fiscal with a 20 percent YoY growth during FY15.

According to ICRA research, during FY15, most regions have exhibited sluggishness with sales growth in the negative territory. In FY15, Central India had been most severely hit with Madhya Pradesh registering a volume de-growth of 25 percent (YoY) owing to high base (27 percent CAGR growth during FY10-FY14) and negative sentiments on account of debilitating demand drivers, especially the crop failures/ damages. High irrigation penetration in Northern India limited the volume decline despite lowest rainfall precipitation in the region during FY15. The eastern and western markets registered 10 percent and 4 percent decline respectively with major contraction in Bihar and Maharashtra markets during FY15. The South, however, de-grew only by moderate 7 percent during FY15 mainly because of the relatively better monsoons in Karnataka which saw volumes grow by 10 percent during FY15 even as Andhra Pradesh and Tamil Nadu saw declines of 16 percent and 18 percent respectively during the same period as a result of sombre demand sentiment.

 


comments powered by Disqus