Mahindra Cuts FY27 Tractor Industry Growth Outlook to Flat Amid Weak Monsoon, Rising Costs

Mahindra & Mahindra has lowered its FY27 tractor industry growth outlook to broadly flat from its earlier expectation of mid-single-digit growth, citing weak monsoon conditions, pressure on farm incomes and rising agricultural input costs. The revised forecast comes as the automaker's core tractor profit margin contracted by 300 basis points year-on-year to 17.6% during the September quarter.

The country's largest tractor manufacturer had maintained its expectation of approximately 5% industry growth as recently as July. However, a deterioration in rainfall and reservoir levels, along with concerns over crop yields, has weakened the outlook for tractor demand during the remainder of the financial year.

"The reservoir levels are much worse than what we would have thought them to be," Rajesh Jejurikar, Executive Director and CEO, Auto and Farm Sectors at Mahindra & Mahindra, said.

According to Mahindra’s investor presentation, the southwest monsoon ended at 87% of the long-period average, while reservoir storage was 16% below normal as of October 15. The automaker also flagged prolonged dry spells, poor soil moisture and risks to agricultural yields. It identified Maharashtra and Karnataka as particularly affected markets, with rainfall deficits of 19% and 30%, respectively.

The company said farm economics had come under pressure as agricultural input costs increased faster than retail prices, weakening farmers' purchasing power.

The slowdown has coincided with a sharp decline in the profitability of Mahindra's core tractor business, which includes exports from India but excludes farm machinery, Powerol and other farm operations.

In the September quarter, the company’s core tractor profit before interest and tax (PBIT) declined nearly 15% year-on-year to ₹1,345 crore in Q2 FY27 from ₹1,574 crore in the corresponding quarter last year. Revenue remained largely unchanged at ₹7,652 crore, compared with ₹7,645 crore a year earlier.

The core tractor PBIT margin narrowed to 17.6% from 20.6% a year ago and 19.2% in the preceding June quarter. Mahindra identified rising steel, base-metal and rubber prices among the factors putting pressure on profitability. The company had increased farm equipment prices by approximately 4% between April and August 2026, but the increases were insufficient to fully protect margins.

The company expects further pressure on core tractor profitability during the December quarter, followed by an improvement in Q4 FY27 and a return to normal margin conditions in FY28.

The pressure was also reflected in Mahindra's wider farm equipment business. Consolidated farm revenue declined 6% year-on-year to ₹9,572 crore during Q2 FY27 from ₹10,225 crore. PBIT fell 14% to ₹1,376 crore, and the PBIT margin narrowed to 14.4% from 15.7% a year earlier. Profit after tax declined 9% to ₹1,053 crore.

Mahindra's tractor sales volumes, including exports, declined 6% year-on-year to approximately 1.16 lakh units during the September quarter. Its domestic tractor market share fell 150 basis points to 41.5%.

However, performance during the first half remained positive, supported by stronger sales in the June quarter. Mahindra sold 2,74,068 tractors during April-September 2026, up 7% year-on-year. Domestic sales rose 6% to 2,62,872 units, while exports increased 16% to 11,196 units. Its domestic market share stood at 43.4% during H1 FY27, down 70 basis points year-on-year.

Growth also moderated in the company's farm machinery business. Revenue, including MITRA, increased 5% to ₹345 crore in the September quarter, compared with 30% growth in the corresponding period last year.

The slowdown continued into October, when Mahindra reported a 13% year-on-year decline in domestic tractor dispatches to 62,626 units. However, the company attributed much of the decline to the timing of the festive season rather than underlying demand alone.

"The volume decline was primarily due to festive calendar shift, with Diwali moving to November this year from October last year," Veejay Nakra, President of Mahindra's Farm Equipment Business, said in the company's November 1 sales statement.

For the April-October period, domestic tractor sales remained 2% higher year-on-year at 3,25,498 units.

Mahindra's revised outlook is broadly consistent with expectations of slower industry growth. A similar warning came from Escorts Kubota, which expects tractor industry volumes to decline by double digits during the second half of FY27 and marginally contract for the full financial year, compared with its earlier forecast of mid-single-digit growth.

According to ratings agency ICRA, domestic tractor wholesale volumes are expected to grow 1-4% in FY27, compared with 23.5% growth in FY26, because of a high base, below-normal rainfall and relatively lower kharif acreage.

Despite the challenging outlook, Mahindra is pursuing price adjustments, product refreshes, higher exports and restructuring of its international farm subsidiaries to protect profitability. The company has completed its exits from Sampo in Finland and Erkunt Foundry in Turkey, while restructuring of its Japanese operations remains underway.

The automaker expects these measures, along with a moderation in some commodity costs, to support a gradual recovery in profitability over the coming quarters.