ICRA says tractor industry to grow 4pc-6pc in FY15

Credit rating agency ICRA has predicted that the sales in the Indian tractor industry are likely to abate in the current fiscal (FY15). It says that untimely rains in some parts of the country during the months of February and March 2014 have impacted Rabi crop as well as consumer sentiments.

The agency revised its FY15 growth outlook downwards to 4pc-6pc. It, however, continues to maintain a volume CAGR of (8-9pc) for the tractor Industry over the next five years as long term industry drivers remain favorable, ICRA said in a press release.

The ICRA research said that the industry had seen a robust performance last year. But in 2014, the growth in the domestic tractor industry shall also be contingent on the timeliness and adequacy of rainfall as a result of the south-west monsoons. Current predictions portend a weaker monsoon on account of the El Niño weather phenomenon, it said.

Unseasonal hail and rainfall early this year have tempered the expectations of bumper Rabi harvest. A 7pc volume correction in April 2014 was partly on account of high base of April 2013-13. Sales were expanded by record 31oc. But a continued weakness in May 2014 points towards a debilitation of demand drivers, the research said.

It explained that states in southern and western India are more vulnerable to the effects of lower rainfall on account of lower irrigation penetration, as against states like Punjab, Haryana and Western Uttar Pradesh, where reliance on rain-fed agriculture is lesser.

The tractor industry (domestic+export) had seen volumes shrink by 3pc in FY13, but a year later the industry witnessed 18pc growth in FY14. The turnaround in performance was on account of the revival in underlying Agri-demand, coupled with a spurt in sales during the festive months. While domestic sales saw 20pc YoY growth during FY14, exports weakened second year in the running. It de-grew by 11pc and 1pc during FY13 and FY14 respectively. On the domestic front, a good monsoon contributed to healthy Kharif output. Coupled with an increase in minimum support prices (MSP), rural inflows were healthy. Good soil moisture content, along with brimming reservoirs, also pushed up the acreage of most Rabi crops, ICRA said.

Region wise during FY14 Madhya Pradesh and Chhattisgarh maintained their strong growth momentum, resulting in growth of 29pc YoY from Central region. The Western Region also witnessed a 28pc volume expansion in FY14 on the back of a surge in demand from Maharashtra. Aided by healthy growth in Rajasthan and Haryana, the northern region recorded 16pc growth. In the South, Andhra Pradesh and Karnataka saw a revival in demand during the last fiscal, after a sharp decline during FY13. The region grew by 15pc but continued demand contraction in Tamil Nadu pulled the region down.

Among the tractor manufacturers in the country, M&M regained some lost market share, with an increase in penetration in North and East. Chennai-based TAFE saw some drop in its domestic market share during FY14 (after a spurt in FY13). Hoshiarpur (Punjab) based International Tractors Limited (ITL) continued to register market share gains in FY14, notably across all regions in the country. Escorts was, however, on the losing end.

ICRA further stated that all OEMs witnessed an uptick in volumes in the previous fiscal, which also aided in healthy margin expansion (150–400bps improvement in PBIT margins for a farm equipment segment of OEMs). FY15 could impact the bottom lines of these companies.

Photography: Mohd Nasir.