Indian Tractor Industry

L.A.Satish Kumar

Saturday 29 January 2011

Indian Tractor Industry

The tractor penetration level in India is very low as compared to the world standards. Also the penetration levels are also not uniform throughout the country. While the northern region is now almost saturated in terms of new tractor sales, the southern region is still under penetrated. The medium horse power category tractors, 31-40 HP are the most popular in the country and fastest growing segment.

There are currently 14 players in the industry. Mahindra & Mahindra is the leading player in the industry. Monsoon season is a key driver for sales of tractors. A series of good or bad monsoon can affect the sales.

Description	Units	World total/ Avg	India	India Rank
Available land	Mn Hector	14444	170	2
Irrigation area	Mn Hector	249.6	45.8	2
Tractors in use	Tractors/1000 Hectors	28	10.5	8

(Source:http://www.scribd.com/doc/36537001/Tractor-industry-in-india )

Annual Trends in Tractor Sales Volume

The tractor industry reported a strong 28.3% growth in sales volumes during 2009-10, thereby ending the phase of cyclical correction that had pulled down tractor sales during the preceding two years (2007-09). Significantly, the revival of 2009-10 happened despite the drought-like conditions in many States during the kharif season dampening sentiments.

The key factor enabling the demand growth of 2009-10 was strong rural liquidity, which in turn was sustained by several factors, including: higher minimum support price (MSP) for crops; greater ability of farmers to make cash purchases (including the usage of Kisan Credit Card which are increasingly being used to part-finance tractor purchases); enhanced employment opportunities (with rural employment schemes being implemented by the Government of India); an improved credit environment; and continuance of replacement demand.

These factors apart, non-agricultural use of tractors (for haulage in construction and infrastructure projects) continued to increase, benefiting tractor demand. Also, with infrastructure projects and rural employment schemes increasing employment opportunities, availability of labour for agricultural activities continued to decline, persuading even farmers with medium-sized land holdings to either rent or purchase tractors.

Trend in Tractor Sales across regions

The northern region remains the largest tractor market in India with sales of around 1,67,000 units as of 2009-10. This region reported a growth rate of 35.7% in volume sales in 2009-10 over the previous fiscal, with the key contributors including UP, Punjab, Haryana and Rajasthan. The northern region benefited from higher MSPs (for crops), limited availability of labour (forcing higher mechanization), and increasing non-agricultural use of tractors.

Additionally, increased infrastructure development activities (especially highways) led to appreciation in land values and use of tractors for non-agricultural purposes. In some cases, farmers also received compensation for the Government’s acquisition of select land patches (adjoining highways), which increased the availability of cash with them. Feedback from industry players suggests cash purchases (including purchases using Kisan Credit Card) in some northern States increased to 35-40% of the total tractor volumes in 2009-10 from 10-15% in the past.

Trend in Tractor sales across States

Tractor volumes in UP grew by 42.7% during 2009-10, with H2, 2009-10 reporting particularly strong growth (around 51% y-o-y) mainly on the back of high sugarcane prices for the kharif crop and improved irrigation facilities. In the case of Punjab, tractor volumes remained strong for the fifth straight year in 2009-10 (y-o-y growth of 42%). In Rajasthan however, growth in tractor volumes was relatively subdued in 2009-10 (around 24% y-o-y) as compared with the figure for the northern region as a whole. Tractor sales in Rajasthan were especially low in H2, 2009-10 versus H1, 2009-10, due to lower kharif output on account of deficient rains and inadequate financing availability.

In the eastern region, tractor volumes continued to report strong growth in 2009-10, albeit on a small base, and went up by 53.8% over 2008-09, being driven mainly by the higher MSPs announced for paddy. Within the region however, many financiers remained reluctant to finance tractor purchases in some States like Bihar. Nevertheless, in Bihar, tractor volumes grew 66% over 2008-09 to around 29,000 units in 2009-10, thereby accounting for over 50% of the total sales in the eastern region. The Bihar market, where tractor penetration had been low historically, has shown sustained growth over the last few years and become one of the important markets for the tractor industry. Overall, in the eastern region, growth in tractor volumes is expected to moderate, going forward, as the benefits of a low base get diluted gradually.

The western region reported sales of around 92,000 tractor units during 2009-10—a growth rate of 35.7% over the previous fiscal—benefiting particularly from the strong performance that Maharashtra, Gujarat and MP posted during H2, 2009-10 (55% y-o-y growth over H2, 2008-09). The factors contributing to the strong growth in the region during H2, 2009-10 included a benign base effect, higher crop prices (of sugarcane and cotton in Maharashtra, and of cereals and soyabean in MP), and greater availability of retail finance.

The performance of the southern region in terms of tractor sales was relatively modest during 2009-10, with the growth rate being around 11.9% over the previous fiscal. While most States in the region reported healthy growth, AP, which is the largest tractor market in the south, de-grew by 10.4% in 2009-10.