Tractor industry on track to farm growth in FY2018, says ICRA

The Indian tractor industry is expected to record a volume growth of 9-10 percent in the current fiscal.

With normal monsoons precipitation coupled with healthy reservoir levels (apart from south India) will have direct impact on farm output in the current fiscal. This, coupled with an expectation of improvement in non-farm income, supported by the government’s thrust on rural spending, infrastructure creation and irrigation spending, is likely to drive the demand for tractors, according to ratings agency ICRA.

According to Subrata Ray, senior group vice-president, ICRA, “Over the long term, ICRA continues to maintain a CAGR estimate of 8-9 percent for the industry. The long-term industry drivers for the industry continue to remain intact. The government of India remains committed towards rural development and agro-mechanisation, a critical component in improving the state of agriculture in the country. Also, continued support towards enhancing irrigation penetration through fresh allocations would reduce rainfall dependence. This coupled with other factors such as increasing rural wages and scarcity of farm labour is likely to aid growth in industry volumes.”

Although India continues to remain a medium horsepower (31-50 hp) market, over the past few years, there has been an enhanced interest in the sub-30hp and above-51hp segments, with most OEMs launching new products in these two sub-segments of the tractor market. While the government’s push for increased farm mechanisation by subsidising tractor purchases is likely to aid sales in the lower horsepower segment, a continued customer shift towards increased usage of various agro-implements is likely to lead to a further increase in market size for high HP tractors over the long term.

Tractor volumes reported a healthy growth during FY2017, boosted by improving farm sentiments following healthy southwest monsoon and expectations of better cash flows in the backdrop of strong growth in kharif and rabi crop production. Additionally, government support programmes in various states also supported demand to an extent. The volumes suffered a blip in November, 2016 following demonetisation, however, domestic volumes recovered quickly to a moderate to healthy growth in volumes during December 2016-March 2017.

In April and May, 2017 also, leading tractor OEMs like Mahindra & Mahindra have reported robust double-digit growth rates in domestic volumes. In contrast to healthy demand growth in the domestic market, tractor exports market remained weak during FY2017, with the weak demand in the global markets attributable to high supplies of commodities and accompanying fall in crop prices across various markets.