Business Bureau :
THE tractor industry volume is likely to de-grow 5-7 per cent in the current fiscal on weak growth in rural income, moderation in rural infrastructure spending and higher channel inventory, says a report. Tractor sales in the last fiscal stood at an all-time high of 8.78 lakh units, rating agency Crisil said in a report Tuesday, adding the high base effect will also contribute to the decline.
However, despite lower volume, resilient margins of 14-16 percent and strong balance sheets are expected to keep credit profile of the manufacturers stable, it said. Also, long-term growth potential remains healthy given lower penetration of 1.5 hp per hectare, compared with an average 6-7 hp in the developed economies and 3-4 hp in the emerging economies. This should give hope to domestic tracker makers, though an immediate revival in tractor sales remains contingent on an improvement in purchasing power in rural markets, it added. “We believe weak growth in rural income, moderation in rural infrastructure spending, higher channel inventory, and the high base effect will lead to de-growth in tractor sales volume by 5-7 per cent this fiscal,” Crisil said.
Noting that the industry is cyclical and heavily dependent on rural incomes and monsoons, it said the rural income was impacted towards the second half of last fiscal because flat crop production after two years of 5-6 per cent growth, and farm profitability declined due to weak pricing. Consequently, rural wage growth was lower at 3-4 per cent compared to an average 6 percent in the preceding two years, it said adding lower growth in spending on rural infrastructure has also impacted non-farm tractor demand in recent months. Additionally, exports, which contribute 10-11 per cent of sales, also declined 28 per cent in the first quarter due to moderation in demand from Latin America. But in the second half, demand should be supported by a sharply improved progress of the Southwest monsoons in the past few weeks, which has brought down the deficiency from 19 per cent as of July 24 to a surplus of 1 per cent as of August 28.