Escorts Kubota Expects Double-Digit Tractor Industry Decline in H2 FY27

India's domestic tractor industry is expected to record a double-digit decline in sales during the second half of FY27 as deficient rainfall, weakening demand in western and southern markets, and a high year-ago base weigh on volumes, according to Escorts Kubota, which has revised its full-year industry outlook from mid-single-digit growth to marginal contraction.

The downward revision comes after a sharp reversal in tractor demand since September, following strong growth during the first five months of the financial year.

"The industry was doing pretty well till August. And overall, April to August, the growth in the industry was about 17%. The major impact or the downtrend started in September when the industry de-grew by about 18%," Neeraj Mehra, Chief Officer of the Tractor Business Division at Escorts Kubota, said during the company's Q2 FY27 earnings call.

He added that industry volumes declined another 16-17% in October, extending the slowdown into the second half of the financial year.

The company expects the weakness to continue through the December and March quarters, partly because the corresponding period last year had recorded strong demand following the GST rate reduction and festive buying.

"So, from a guidance perspective, we are looking at a very marginal de-growth in the financial year 2027 industry; single-digit marginal de-growth," Mehra said.

He subsequently confirmed that the company expects double-digit industry contraction during H2 FY27. The industry had grown approximately 8% during the first half of the financial year.

The slowdown is not uniform across the country, with western and southern markets accounting for much of the weakness.

According to Mehra, tractor industry volumes in western India declined approximately 21% during Q2 FY27, while southern India recorded a marginal contraction. Northern and eastern markets continued to register marginal growth. "This is region-specific. This hasn't been pan-India," Mehra said.

He attributed the weakness primarily to deficient rainfall and lower reservoir levels, which have affected agricultural activity and rural sentiment in several markets.

According to figures cited by the company, rainfall was around 13% below normal, while reservoir levels stood at approximately 70%. Mehra said western and southern markets were particularly vulnerable because of their greater dependence on reservoirs.

Northern India, which recorded approximately 6% tractor industry growth during Q2, is expected to remain broadly flat or post a marginal decline in the second half. Most of the contraction is expected to come from western and southern states.

The weakness is also reflected in the latest sales figures reported by major tractor manufacturers. Mahindra & Mahindra's domestic tractor dispatches declined 13% to 62,626 units in October, compared with 72,071 units in the year-ago month. The company attributed the decline primarily to the shift in Diwali from October last year to November this year.

Similarly, Escorts Kubota's domestic tractor dispatches fell 11% to 16,412 units during October, compared with 18,423 units a year earlier. The company cited a high base, changes in festive timing, and monsoon-related disruptions.

Escorts Kubota also expects further dealer inventory correction in November after reducing stocks during October. The company had maintained inventory ahead of Dhanteras and Diwali and expects the industry to make similar adjustments.

Rising tractor prices could add to the pressure on demand. Escorts Kubota plans to increase tractor prices by approximately 3-3.5% from mid-November to offset higher commodity and manufacturing costs.

The proposed increase follows earlier hikes of around 1.5% in April and 2-2.5% in August, taking the cumulative price increase to approximately 6-7%.

According to Bharat Madan, Whole-Time Director and Chief Financial Officer, commodity cost inflation had reached approximately 8-9% by the end of Q2, with another 2-3% of cost pressure building during Q3.

The company expects the latest price increase to provide limited relief during Q3, with a more meaningful benefit likely from Q4.

Despite the weakening industry outlook, Escorts Kubota managed to improve its market share during the September quarter. Its domestic tractor dispatches increased marginally to 32,628 units from 32,329 units a year earlier, even as overall domestic industry volumes declined approximately 3% to 2.66 lakh units.

This helped the company increase its market share by 48 basis points, supported by recent product launches, particularly in the four-wheel-drive category, and improved dealership execution.