Domestic tractor manufacturers to register 16 to 18% sales growth in FY17: Crisil

Highlights:

1. The sales of tractors revived during the current fiscal on back of normal monsoon, which resulted in rise of Kharif crop production and increase sowing of Rabi crop 

2. With the government's demonetisation move, India's tractor sales recorded a decline of 13% during November last year

3. The tractor sales recorded a modest growth of 7% in December last year and 5% in January this year 

4. Crisil expects the impact of demonetisation to be short-term and the tractor sales are predicted to recover by the first quarter (Q1) of 2017-18

Domestic tractor manufacturers are projected to record 16 to 18% growth in sales of tractors for the fiscal year 2016-17 (FY17) on account of revival of sales due to good monsoon which offset the impact of demonetisation on demand in the second half of the fiscal, according to Crisil Research.

The current financial year will end on March 31.  

The sales of tractors revived during the current fiscal on back of normal monsoon, which resulted in rise of Kharif crop production and increase sowing of Rabi crop . 

“Sales revived as the south-west monsoon came in normal. Rains were 97% of the long-period average, timely and well-distributed, resulting in Kharif production increasing 10% on-year (according to second advance estimates), and Rabi sowing also 5.7% higher on account of sufficient reservoir levels. This helped unleash pentup demand,” cited Crisil Research in a press release on Tuesday. 

Besides, the two important Hindu festivals of India- Dusshera and Diwali-which were celebrated in October also resulted in the growth of tractor sales of about 26% during the April to October period of last year as customers grabbed the lenient financing terms and credit period extension offered by dealers. 

However, in a move to curb black money, corruption and terrorism prime minister Narendra Modi's surprise announcement of demonetisation of old currency notes of Rs 500 and Rs 1,000 on November 8 last year resulted in decline in tractors demand in the latter half of the fiscal.

ALSO READ: Tractor sales plough through demonetisation in January; higher growth expected ahead 

The transactions in the rural areas, which accounts for the bulk of tractor sales in India, are largely cash-based and with the demonetisation move the country's tractor sales recorded a decline of 13% during the November month last year. 

The tractor sales, however, recorded a modest growth of 7% in December last year and 5% in January this year.

“Rabi sowing has defied the note ban impact and is progressing well, especially in states like Madhya Pradesh and Rajasthan. With faster acceptance of non-cash transactions in these states, demand for tractors is projected to see healthy growth going forward. However, the southern states – particularly Karnataka and Tamil Nadu – are reeling under drought conditions and demonetisation has only worsened the situation. Hence, recovery here is going to take longer,”  Crisil Research senior director Prasad Koparkar, said in a statement. 

The ratings agency expects the impact of demonetisation to be short-term and the tractor sales are predicted to recover by the first quarter (Q1) of 2017-18. 

It further said the growth of tractors is expected to remain in single digits even for February and March, as farmers cope with the note ban, and gradually shift to using cheques and online transfers (NEFT, RTGS) for making purchases, 

Commenting on the growth of tractor sales, Crisil Research director Binaifer Jehani, said in a statement, “Maharashtra, Madhya Pradesh and Uttar Pradesh are expected to drive demand. Growth in the peninsular region would be driven by Andhra Pradesh and Telangana, and though Karnataka and Tamil Nadu could experience stress for a while, the overall region should perform well, given normal monsoons and consistent pace of rural development activities.” 

The sales of tractors are likely to witness  growth of 8 to 10% in the upcoming fiscal year 2017-18 (FY18).

“...We see tractor volumes picking up in coming quarters, though, for lack of a low base as was the case this year, fiscal 2018 could close with a relatively sober growth of 8-10%,” cited Crisil Research. 

ALSO READ: Tractor sales to grow by 17% in FY17 if demand normalises