ICRA expects Tractors volumes to grow by a modest 2-4

ICRA Research says tractor industry volumes growth to pick up marginally in FY16 with likely moderation of cyclical headwinds and recovery in non-farm demand
ICRA expects Tractors volumes to grow by a modest 2-4

In view of IMD’s revised forecast for the 2015 monsoon and the actual rainfall and monsoon precipitation so far, ICRA expects tractor industry volumes including exports to grow by a modest 2-4 percent. The ICRA, in its latest research updates on Indian tractor Industry, says that the tractor industry would continue to maintain a volume CAGR of 8-9 percent over the next five years as long term industry drivers remain favorable.

According to ICRA, the government’s efforts towards rural development and agri-mechanisation; besides other factors like scarcity of farm labour, healthy credit availability, moderate penetration and shortening replacement cycle continue to encourage demand for tractors.

Domestic tractor sales volume declined by 13 percent during FY15 owing to host of unfavorable factors which include delayed and deficient monsoons, decline in Kharif output, softening commodity prices, modest increases in MSP of major crops, lower realizations in cash crops, altered rabi sowing pattern and farm losses due to extensive crop damages due to unseasonal rainfall and hail storms in several key rabi cropping states.

Domestic tractor volumes which remained supported in H1FY15 aided by wholesale push to some extent, witnessed severe slump of 22 percent YoY in Q3FY15 and 30 percent YoY in Q4FY15 in absence of any pickup in demand with farm sentiments being negatively impacted owing to dip in farm incomes because of aforesaid factors. Further, non-agri demand pull has also remained subdued with slow pick-up in pace of infrastructure and construction activity. While domestic tractor sales remained somber, export segment continued to perform well through the fiscal with a 20 percent YoY growth during FY15, ICRA highlights in the report.

According to ICRA research, during FY15, most regions have exhibited sluggishness with sales growth in the negative territory. In FY15, Central region had been most severely hit with Madhya Pradesh registering a volume de-growth of 25 percent (YoY) owing to high base (27 percent CAGR growth during FY10-FY14) and negative sentiments on account of debilitating demand drivers, especially the crop failures/ damages. High irrigation penetration in Northern region limited the volume decline despite lowest rainfall precipitation in the region during FY15.

Eastern and western market registered 10 percent and 4 percent decline respectively with major contraction in Bihar and Maharashtra markets during FY15. South, however, de-grew only by moderate 7 percent during FY15 mainly because of the relatively better monsoons in Karnataka which saw volumes grow by 10 percent during FY15 even as AP and TN markets saw declines of 16 percent and 18 percent respectively during the same period owing to somber demand sentiments.

The Changing Face of Rural India