Covid Break: Rural impact to limit tractor sales growth, says report

Growth in domestic tractor sales volume might get limited to 3-5 per cent this fiscal on the back of strong second wave of Covid-19 infections and rising cases in hinterland, apart from high-base effect of last fiscal, said Crisil Ratings on Tuesday.

Accordingly, the agency said that trend is expected to take place despite the forecast of a normal monsoon auguring well for farm incomes and therefore tractor demand.

Besides, it pointed out that operating margins of tractor makers will shrink on an average by 200 basis points (bps) due to firming up of steel prices, which is the primary raw material and accounts for bulk of the cost.

However, the credit profiles of tractor makers will, continue to remain stable, supported by strong and almost debt free balance sheets, as well as robust liquidity.

"The already high base of last fiscal and severity of the second wave preclude significant tractor volume growth this fiscal," said Gautam Shahi, Director, Crisil Ratings.

"Several states have imposed lockdowns recently, and crucially, rural India has been less insulated this time around. Maharashtra, Uttar Pradesh, Haryana, Karnataka, Madhya Pradesh and Rajasthan, which account for over 50 per cent of tractor volumes, have seen a surge in infections."

Last fiscal, domestic tractor volumes logged a whopping 27 per cent on-year growth to a record 9 lakh units.

The growth, that time, was driven by strong government spend on rural schemes and an increase in farm incomes, supported by good monsoons.
Moreover, rural India was less impacted by the pandemic last fiscal and farmers redirected savings from spending on marriages, etc, towards tractor purchases, the agency said.