CRISIL: Tractor Sales Growth To Decrease In FY24, Operating Margins To Improve
Tractor sales volume will reach a new high in fiscal 2023 as farm sentiment remains positive following another good monsoon.
According to credit rating agency CRISIL Ratings, the rate of growth in tractor sales will be cut in half in FY24, while operating margins will improve due to lower input costs.
"Domestic tractor sales volume growth is seen halving to 4-6 per cent in fiscal 2024 from a high base created by a compound average growth rate of 10 per cent since fiscal 2020 on the back of successive normal monsoons," CRISIL said in a statement.
However, falling input prices for steel and pig iron will provide a 100-200 basis point (bps) boost to tractor manufacturers' operating margins.
Furthermore, net cash-positive balance sheets will support strong credit profiles in the future.
Tractor sales volume will reach a new high in fiscal 2023 as farm sentiment remains positive following another good monsoon – the primary driver of farm incomes – and an increase in the Minimum Support Price (MSP) for the 2022-23 market season.
"Tractor volume growth will be driven by both the farm and commercial segments next fiscal year, building on a strong foundation. The 5% increase in MSP for wheat for the current rabi crop – the highest in the last four fiscals – will boost farm incomes, while the government's infrastructure push and increased construction activity will boost commercial demand "Director Naveen Vaidyanathan stated.
According to Nitin Bansal, Associate Director, despite successive price increases, high input prices have resulted in operating margins falling for the last two fiscals, from a decadal high of about 22% in fiscal 2021 to about 15% in fiscal 2023.
Steel and pig iron prices, which account for roughly 90% of total raw material costs for tractors, have eased in recent months and may fall by 6-12% next fiscal year due to lower coal prices.
According to Bansal, this should help improve the operating margin to 16-17%.
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