Tractor sales may see flat volume growth this year

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After taking further hit in volumes during the second quarter of current financial year, tractor sales is set to remain tepid due to weak monsoon effects and difficult market conditions. The tractor industry is expected to see a flat year in volumes or a very marginal decline in FY13.

“While industry volumes grew at a modest rate of 2.8 per cent during the first quarter of current financial year, growth slipped into the negative territory during second quarter after posting 10.9 per cent YoY fall in volumes with lower than expected precipitation impacting sentiments in the farm community. Further, the industry demand continues to be held back by high interest rates and inflation affecting investment sentiment of farmers and hike in tractor prices by domestic OEMs. Demand from the non-agricultural segment has also remained sluggish with no significant pick-up in construction and infrastructure related activity,” pointed out a report of rating agency Icra.

Tractor sales are expected to be tepid in Q3FY13, in light of weak kharif output and concerns over the delayed sowing of rabi crop. However, some improvements will be seen in Q4 2012-13 due to weak base of Q4 2011-12 and likely reversal of interest rate cycle. Overall, tractor sales volumes are to witness flat volumes (0-2 per cent decline) for full year FY13,” it added.

Though Mahindra & Mahindra reported strong growth in domestic sales during November this year compared with November 2011, the tractor market leader’s total domestic volumes for the period April-November period fell by four per cent at 151,987 units compared with 158,205 units in the same period previous year. Mahindra has projected a growth outlook of 0-2 per cent for the industry for the full year.

During the first half of current financial year, Tafe, Escorts and Sonalika have seen their market share increasing, while Mahindra has seen a marginal drop at 41 per cent from 41.4 per cent in FY12, according to estimates.

Crisil Research has also projected that domestic tractor sales to decline by 0-3 per cent in 2012-13 as farm incomes will be impacted by a lower kharif output (which is expected to be 10 per cent below that of 2011-12.

“Our industry interaction indicates recovery in demand during the festive season with flat YoY growth in retail sales (compared with YtD decline). With favourable base and prospects of healthy rabi crop, we expect recovery in tractor sales to continue in the second half,” pointed out Jinesh Gandhi of Motilal Oswal Financial Services.

balachandarg@mydigitalfc.com

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