Ratings agency Crisil in its latest report has said that domestic tractor sales volume should recover faster than expected with the industry estimated to grow 10-12 percent in the current financial year (FY21) against earlier projection of 1 percent de-growth. It pointed out that the expected rise in tractor sales would be backed higher farm income despite the COVID-19 pandemic, and the demand growth is expected to be particularly strong in the southern and western parts of India given higher kharif sowing and a copious monsoon, both of which are crucial for these regions.
The ratings agency has indicated that in April-September, tractor industry volume was up 12 percent year-on-year, with the southern and western regions witnessing almost 45 percent and 13 percent demand, respectively. It also said a higher volume and improved product mix will drive expansion in operating margin of tractor makers, which may see a 100-200 basis points increase, thereby supporting their credit profiles. It also said a good monsoon and higher crop production generally support farm incomes and provide a fillip to tractor demand and added that in the just-past rabi season, crop production surged a significant seven per cent year-on-year.
According to the report, this is reflected in the strong pick-up in tractor sales volume in the second quarter of this fiscal despite a sharp de-growth in the first quarter due to pandemic-related containment measures. It stated that tractor volumes may continue to grow for the rest of this fiscal given good crop prospects over the medium term and timely government interventions as good rains in June have facilitated early sowing and boosted kharif acreage. Further, it said a well-distributed and nine per cent above-normal monsoon season have meant reservoir levels surging to their highest in five years. That is a good augury for the upcoming crop seasons.