M&M sees 5% degrowth in tractor industry in FY24 on weak rural sentiment

The softness in rural demand has impacted the sales of tractors, small commercial vehicles, and other entry-level utility vehicles, claims the top leadership at auto major Mahindra & Mahindra (M&M) during a post-results conference call with the media.

Rajesh Jejurikar, Executive Director and CEO at Mahindra & Mahindra (M&M) said, "We expect the tractor market to be more negative than we thought, for the full year." According to him, the Q4 FY24 volumes are expected to decline by 10%, while the overall drop in FY24 is likely to be about 5%.

The uneven distribution of rainfall, along with a record low water reservoir level in 5 years has added to the woes of tractor makers which are already witnessing sluggish sentiments in the rural market.
 
For the sake of perspective, rural demand has been erratic, post-COVID-19, even though there has been a visible upswing during the festival season in the last few months of the calendar year. The tractor market which has remained robust and resilient over the last few years is in for a correction.

Dr. Anish Shah, MD and CEO, M&M stated that the tractor industry grew by about 27% over the last few years, While it has now come down to about 4% degrowth on a YoY basis, the expected sales of about 900,000 units for FY24 is still large.

On its part, Mahindra is better off and continues to build its market share in the tractor segment., the company's market share grew by 80 basis points to 41.8% in Q3 FY24 (the highest Q3 since FY19), despite the high base of last year. High marketing spends during the cricket World Cup and the launch of new small horsepower tractors Oja and Target has also helped the company to grow its segment share, which has aided the overall market share gains. 

While the volumes are down for tractors - it is a "mixed story on the automotive side", even as its SUVs continue to grow in strong double digits - the sales of light commercial vehicles and the Bolero UV has been impacted by the rural slowdown,  Jejurikar noted.  
 
While the headwinds remain, Jejurikar claims factors like good monsoon and increased government spending in rural areas and revised budget post elections can help in reviving the rural sentiments. 
 
Jejurikar noted that the terms of trade are "positive" for the farmers, with output inflation at 6% and input inflation at 3%, which gives them more income and will help in improving the sentiment.