The tractor industry has recorded a big jump in sales -- with over 60,000 units sold in December -- a 41.8 percent rise year-on-year.
It's been a good season for tractor manufacturers as sales shot ahead of expectations, in stark contrast with the rest of the auto industry that barely registered a revival during the festive season. For the first eight months of 2020, the industry witnessed growth at 15 percent. However, demand picked up during the festive season.
The industry recorded a big jump in sales in December -- with 60,000 units being sold -- more than 40 percent compared to the previous year.
Experts attributed the figures to the pick up in farm income, among other factors. Ramesh Iyer, Vice Chairman and Managing Director of Mahindra and Mahindra Financial Services said that farm income played a big role in the growth witnessed in tractor sales. November was also a good month as sales jumped 51 percent year-on-year.
The sector has spent this fiscal collecting cheques, which comes as a surprise considering the disastrous performance during March-April. However, even as experts are sceptical about the bump in sales, Iyer suggests it can sustain.
The infrastructure sector will further boost sales on the back of trailer sales, he opined. But on the other hand, infra hasn't opened up yet in certain pockets.
"It's true, some pockets are yet to open, but despite these hyper-localised lockdowns, rural sentiments are broadly positive," he said.
Hemant Sikka, President of Farm Equipment Sector at Mahindra and Mahindra added that the outlook on tractors is strong, but these growth numbers will be hard to sustain continuously.
"We won’t be able to do 15 percent, but we will try and do double-digit because right now we have excellent demand for all our products," he explained. M&M emerged as a market leader in December; it sold over 21,000 units — 23 percent higher than December 2019.
Sikka isn't the only one hoping for double-digit numbers. While Ace sold comparatively lesser units than M&M, Sorab Agarwal of Ace said it is looking at 20-25 percent-plus growth.
"Currently, we are working at about 40-50 percent tractor utilisation. Our capacity is at about 7,200 tractors annually. This year we should be closing some 4,000 tractors but going ahead we are definitely looking at 20-25 percent growth or maybe slightly more than that," Agarwal said.
Bharat Madan of Escorts shares similar views. He believes that the outlook is promising at present. The earlier pent-up demand might not continue, “
Escorts recorded the highest YoY growth in December. It sold some 7,000 plus units, up 90 percent as compared to the previous year. It's market share also increased by more than 3 percent and now commands more than 11 percent of overall sales.
It’s not just the pent-up demand driving growth. Factors such as good monsoon, easy finance availability, increased MSPs and market-rate realisation have also made a positive impact. Some experts believe that excessive price movement might put the sector in the shadows.
Moreover, original equipment manufacturers are battling supply-side constraints; add dynamic price movements in the mix and what you get is a recipe for disaster, Madan hinted. Despite that, Madan said, exports could be good growth engines for us in the next three to five years.