Tractor Industry Braces for El Nino Impact Amidst Election Buzz
Tractor manufacturers remain optimistic and anticipate an increase in overall sales due to government investments before elections and favorable minimum support prices for crops.
After an impressive display in the fiscal year 2022-2023, the domestic tractor industry is poised for a subdued performance in the current financial year. The looming threat of El Nino conditions adds to the concern, potentially impacting crop yields. Despite these challenging circumstances, companies such as Mahindra & Mahindra (M&M) and Escorts anticipate a slowdown in tractor sales, projecting growth to be limited to low single digits in FY24.
In the previous fiscal year, the domestic tractor industry witnessed a remarkable growth of 12.2 percent compared to the previous year, reaching a record-breaking figure of 9.45 lakh units, as opposed to 8.4 lakh units previously. The industry's outstanding performance can be attributed to favorable macroeconomic factors such as increased crop production, favorable crop prices, a successful monsoon season, and the availability of accessible retail finance. These positive conditions have collectively contributed to the industry's unprecedented success.
Tractor manufacturers remain optimistic and anticipate an increase in overall sales due to government investments before elections and favorable minimum support prices (MSP) for crops.
Rajesh Jejurikar, the Executive Director and CEO of the Auto and Farm Sector at M&M highlighted that tractor conditions have improved with positive factors such as adequate reservoir levels and a successful rabi crop.
"We have identified several positive factors that are contributing to the current situation. Firstly, the reservoir levels are significantly high, which is advantageous for various purposes. Additionally, there has been a noticeable increase in government expenditure on rural and agricultural sectors, especially in anticipation of the upcoming election year. Moreover, the Rabi crop has yielded positive results, and the prices in agricultural markets are satisfactory. Encouragingly, a recent report from the IMD (Indian Meteorological Department) has predicted favorable rainfall, which will further boost sentiment and consequently drive tractor sales. As a result, we anticipate a modest single-digit growth in tractor demand for the fiscal year 2024," Jejurikar shared during a recent press conference in Mumbai.
The company has achieved a significant market share of 41.2% throughout the fiscal year 2023, amounting to 404,000 units. In the upcoming fiscal year 2024, the company aims to enhance its presence in the tractor market by introducing a new platform for lightweight tractors under the brand Swaraj, aiming to further increase its market share.
Jejurikar expressed confidence in Swaraj's market share growth, attributing it to their efforts in improving channel efficiency. This success has emboldened them to expand into new product categories and segments where they currently lack a presence. Swaraj's upcoming upgrade is anticipated to be substantial, and the company plans to launch an aggressive marketing campaign in August and September. Additionally, they are introducing the Swaraj lightweight series, featuring 25 and 29 HP tractors, which will be unveiled on June 2nd.
Bharat Madan, the Whole Time Director and Chief Financial Officer of Escorts, anticipates that the monsoon this year will not have a substantial impact due to the satisfactory reservoir levels in the key markets served by the company.
"In anticipation of the upcoming general elections, there is a projected doubling of infrastructure spending this year compared to previous years. Consequently, the haulage sector, along with the mix segment comprising approximately 30% of the total industry, is expected to receive a significant boost. Furthermore, the expected growth in agriculture, driven by increases in Minimum Support Prices (MSP) as well as advancements in irrigation and water reservoirs, indicates a single-digit growth for the industry as a whole," he stated during a conference call.
According to Madan, sales during the first quarter of FY24 are expected to remain stagnant due to the advancement of festivals in March 2023. The company concluded FY23 with a market share of 10.1 percent, a slight decline from the 10.3 percent recorded in FY22. This decrease in market share can be attributed primarily to a subdued performance in Q1FY23, following which the company has observed a gradual increase in market share in each subsequent quarter.
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