Latest News | Tractor Sales Volume Growth to Be at 3-5 Pc This Fiscal: Crisil

Mumbai, May 18 (PTI) Growth in the domestic tractor sales volume is likely to be at 3-5 per cent this fiscal, given the strong second wave of COVID-19 and rising cases in the hinterland, rating agency Crisil said.

This is despite the forecast of a normal monsoon auguring well for farm incomes and therefore tractor demand, the agency said in a release.

Domestic tractor volumes logged a whopping 27 per cent year-on-year growth last fiscal to a record 9 lakh units, according to the release.

“The already high base of last fiscal and severity of the second wave preclude significant tractor volume growth this fiscal.

“Several states have imposed lockdowns recently, and crucially, rural India has been less insulated this time around. Maharashtra, Uttar Pradesh, Haryana, Karnataka, Madhya Pradesh and Rajasthan, which account for over 50 per cent of tractor volumes, have seen a surge in infections,” Crisil Ratings Director Gautam Shahi said.

The growth in the previous fiscal was driven by strong government spend on rural schemes and an increase in farm incomes, supported by good monsoons. Moreover, rural India was less impacted by the pandemic last fiscal and farmers redirected savings from spending on marriages, etc., towards tractor purchases, it said.

Noting that part of the good augury is expected to continue with a forecast of a well-distributed and normal monsoon (98 per cent of the long period average) this year, too, the agency said, “This should benefit farm incomes and help sustain demand for tractors”.

An all-time high rabi-sowing and expected good Kharif season, driven by healthy reservoir levels, will be supportive, too, it added.

Additionally, increased government spending in rural India and prospects of higher minimum support prices for 2021-22, should buoy rural incomes, the release said.

Also, non-agricultural tractor demand (20-25 per cent of demand), which moderated last fiscal, is expected to recover, supported by a recovery in rural infrastructure and mining activities compared with last fiscal, it noted.

Even as tractor volumes growth remains in positive territory, players in the sector have seen their cost of operations rise sharply as the price of the primary raw material, steel (75-80 per cent of the total cost), has appreciated sharply. Primary steel prices increased by over 60 per cent in the six months through April 2021, and are expected to remain strong in the near term, before easing in the second half, Crisil said.

According to the rating agency, although tractor players generally enjoy good pricing power, they are expected to absorb a part of the cost inflation given the sudden surge in steel prices.

“We could see a moderation in operating margin to 15-17 per cent this fiscal, from around 18-19 per cent seen in fiscal 2021, as players absorb part of the cost inflation.

“This, however, will still be healthy, given expected high capacity utilisation of around 78-80 per cent in fiscal 2022 and strong operating leverage,” said Naveen Vaidyanathan, Associate Director, Crisil Ratings Ltd.

Credit profiles, too, are expected to remain healthy, with negligible debt levels for most players, robust cash surpluses of Rs 16,000 crore and low capital expenditure requirement, he added.

For the road ahead, the monitorables include the surge in COVID-19 infections and its spread to the hinterland, the progress and spread of monsoon, and their impact on rural demand, the release said.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)