Domestic tractor sales volume growth likely to be at 3-5% this fiscal: Crisil

19 May 2021 Evaluate

Amid strong second wave of COVID-19 and rising cases in the hinterland, rating agency Crisil has said that the domestic tractor sales volume growth is likely to be at 3-5 per cent this fiscal. This is despite the forecast of a normal monsoon auguring well for farm incomes and therefore tractor demand. Domestic tractor volumes logged a whopping 27 per cent year-on-year growth last fiscal to a record 9 lakh units. The already high base of last fiscal and severity of the second wave preclude significant tractor volume growth this fiscal.

Crisil Ratings Director Gautam Shahi said ‘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’. 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.

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

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. 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. For the road ahead, the agency said 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.

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