However, it pointed out that commodity pressures are likely to moderate margins in FY22 from previous year levels. 

"The credit outlook on tractor industry remains 'Stable'. Despite expectations of some margin pressure, the operating margins for most OEMs in the industry are expected to remain at healthy levels, with return indicators being robust. OEMs continue to  focus on developing new application oriented products and are working on emission norm related product launches," said Rohan Kanwar Gupta, Vice President, ICRA. 

"In line with ICRA's stable outlook on the industry, the credit profiles of OEMs are expected to remain healthy, supported by limited debt, healthy cash and liquid investments and limited investment plans." 

Besides, the rating agency expects a 1-4 per cent YoY growth in domestic tractor volumes in FY22. 

Earlier, ICRA had made a forecast of 4-6 per cent growth in volumes for FY22; in view of the impact of the second wave, the same has been revised downwards to 1-4 per cent. 

"Even as uncertainty with regard to the evolution of the pandemic exists, the underlying demand drivers for the industry remain intact. Expectations of healthy rabi cash flows, continuation of various Government support programmes, healthy financing availability  and a normal monsoon forecast, are likely to aid farm sentiments," the agency said. 

"In addition to strong agri demand, haulage demand has improved significantly over the past few months, led by continued push of the government on developing rural infrastructure; the same is likely to support industry volumes," it added.