September 2014

CRISIL Opinion

Tractor sales to skid in 2014-15 due

to monsoon slippage

CRISIL Opinion

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Tractor sales to skid in 2014-15 due to monsoon slippage

The damage to the rabi crop in key agrarian states, caused by unseasonal rains and hailstorms in February
and March, compounded by the less-than-normal monsoon this year will take a toll on domestic tractor sales
volumes in 2014-15 and diminish the sheen of the industrys stellar performance last fiscal.
We reckon that domestic tractor sales volumes are likely to fall by 3-5 per cent y-o-y this fiscal due in large
measure to the delayed kharif sowing caused by the late onset of rainfall this season rainfall was 18 per
cent deficient during June-August this year and the Indian Meteorological Department (IMD) currently
predicts that the monsoon for the entire year will be 87 per cent of the long period average. Key agrarian
areas like Punjab, Uttar Pradesh, parts of Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, West
Rajasthan and Bihar have received deficient rainfall ranging from 64 per cent to 16 per cent.
Although kharif sowing has picked up in August (latest agriculture ministry estimates suggest near- to abovenormal sowing in rice and cotton but below-normal sowing in cereals, oilseeds and pulses), it is still 3.2 per
cent below what it was in the corresponding period last year. At the beginning of August, sowing was 14 per
cent below last seasons figure.
Moreover, the sentiment was negative in the first quarter (April-June 2014) because of unseasonal rains that
caused some damage to the rabi crop. This hit tractor sales during March-May in major states such as
Madhya Pradesh, Maharashtra and Rajasthan and, to some extent, Haryana and Punjab.
The poor monsoon this year will impact the kharif crop and heighten the downside risk to agricultural income
and, consequently, tractor sales in states that are critically dependent on rainfall. Farmer realisations in the
kharif season are also likely to be lower this year as many farmers went in for short-duration crops early in
the season due to predictions of deficient rainfall. Even in less-rainfall dependent states such as Punjab and
Haryana, costs of inputs (power, fuel etc) will go up and impact incomes.
The hike in minimum support prices (MSPs) of both kharif and rabi crops which has played a key role in
propelling tractor sales in the past is also modest this year (1-4 per cent y-o-y) compared with an average
10-15 per cent each year between 2007-08 and 2012-13.
On the positive side, however, news on water levels in the countrys 85 major reservoirs areas is more
encouraging for the forthcoming rabi crop. According to the Central Water Commission storage this year is
slightly higher than the average of the last 10 years (as of August 21) although it is still about 12 per cent
lower than in the corresponding period last year.
Nevertheless, the overall sentiment towards tractor purchases may not take a turn for the positive until the
fag end of the year unlike last fiscal when a good kharif and rabi output reflected in healthy growth in tractor
sales till February before unseasonal rains in March depressed sentiment over the next couple of months.

CRISIL Opinion

The dip in tractor sales this year will be a disappointment to the industry, coming as it does on the back of a
robust 19-21 per cent growth in 2013-14 but it does reveal how critically dependent the domestic industry still
is on rainfall. Despite considerable progress on the irrigation front, the progress of the monsoon still has a
direct bearing in many states on crop production and, consequently, tractor sales.
Traditionally, the impact of a deficient monsoon is most in the western regions, followed by the South,
particularly Tamil Nadu, which is highly dependent on the rainfall. But in 2014-15, we expect sales may
decline by 5-7 per cent in the west, and 3-5 per cent in the North. The South will be relatively unscathed,
largely because of the relatively better monsoons in Karnataka.
In Haryana and Punjab, the weak monsoon will compound the effects of the damage to the rabi crop in terms
of an increase in input costs. Sales will slip by 8-10 per cent in Madhya Pradesh and Maharashtra (in the
western region), both of which are key tractor markets. In Gujarat, we expect sales to be flat, but that number
masks the fact that last years base is very low. In Tamil Nadu, we expect back-to-back monsoon failures to
continue to severely impact sales.
West and North regions to pull down sales in 2014-15
300,000

15.6%

250,000

(2)-(5)%

28.9%

8.8%

(5)-(8)%

Sales units

200,000

-2.0%

150,000

100,000

17.2% 0-(3)%
8.8%

-26.7%

15.5% 0-3%

50,000

North

West

2012-13

2013-14

East

South

2014-15 P

Source: Industry, CRISIL Research

In the long term, however, tractor sales will rise steadily supported by stable farm incomes, increase in
investments on irrigation projects, growing commercial usage of tractors and increased focus of government
on agricultural and rural development.
Cross-country comparison also indicates healthy demand potential with the current penetration of tractors
estimated to be close to 1 hp per hectare compared to a range of 3-4 hp per hectare in developed countries.
Clearly, India has a long way to catch up.

(Please note that the views expressed here are those of CRISIL Research and not of CRISILs Ratings
division. CRISIL Research operates independently of and does not have access to information obtained by
CRISIL's Ratings Division.).

Analytical Contacts:
Ajay Srinivasan
Director, CRISIL Research

Geoffrey Dcunha
Manager, CRISIL Research

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