The tractor industry is registering a strong recovery on the back of a smart demand revival post-lockdown and this has led to a significant increase in sales and production.
Tractor sales in May recovered sharply after the lockdown was lifted and the total volumes for the month stood at 64,860 units, including exports of 4,419 units. In March and April, total sales (including exports) stood at 35,216 units and 12,256 units respectively. Sales in May were also marginally higher than 64,514 units sold in the same month last year.
Similarly, tractor production stood at 30,751 units in May, compared with 39,200 units in March and 158 units in April, according to the data provided by the Tractor & Mechanisation Association.
Top tractor maker Mahindra & Mahindra, which reported marginally higher sales in May at over 24,000 units, expects sales to improve further in the coming months.
“The timely relaxation of the lockdown for the agricultural sector helped ensure speedy recovery of tractor demand in May. In the near term, farmer sentiment is likely to remain positive,” said Hemant Sikka, President - Farm Equipment Sector, Mahindra & Mahindra Ltd (M&M).
M&M’s capacity utilisation level is touching 80 per cent and will increase further in June and in the coming months.
“The healthy recovery in the tractor segment is primarily driven by better farm incomes aided by healthy rabi inflows and also to some extent low base effect. The improvement in production can also be attributed to relatively weak inventory levels in the system (both at OEM and dealer levels),” said Subrata Ray, Senior Group Vice-President, Icra.
Sonalika Tractor started with 20-25 per cent capacity utilisation during the first week of May and as it entered the fourth week, it reached 80 per cent. In June, its manufacturing operation is expected to touch 100 per cent utilisation.
“In the current scenario, it is expected that all the financial institutions would be very aggressive in tractor financing since the rural industry is expected to grow compared to other automobile segments. Favourable monsoon, the government’s support for agriculture operations and availability of financing have led to week on week delivery growth in the month of May and we are expecting the growth momentum to continue this month as well,” Raman Mittal, Executive Director, Sonalika Group, told BusinessLine.
Escorts reported flat domestic sales at about 6,500 units in May. The company management recently pointed out that the tractor industry would regroup faster compared to other sectors with pent-up demand growing post-lockdown.
“The pent-up demand will help the industry show a growth in June-October period,” said Bharat Madan, Group Chief Financial Officer Escorts Ltd.
The company’s production levels were at 20 per cent in mid-May and it aims to reach 50-60 per cent this month.
“We expect the tractor segment to be the least impacted by the pandemic owing to healthy trends in rural areas, expectations of stable monsoon, very good reservoir levels and relatively less impact of the disease outbreak in the rural ecosystem,” said Icra's Ray.
If the demand continues to show a positive trend, the industry is likely to end this fiscal with positive growth as against a decline projected earlier.