Decline in tractor sales

Published Mar 25, 2013 01:15am

WHILE tractor manufacturers in India are unveiling ambitious plans to expand production and diversify into new models, demand for the farm vehicles continues to stagnate.

Leading tractor producers are consequently shutting down plants temporarily to slash inventories that are piling up across dealerships.

Last week, Mahindra & Mahindra (M&M), India’s leading automobile and tractor manufacturer, announced that it would shut down production at two plants this week because of sluggish tractor sales.

“As part of aligning its production with sales requirements, the company will be observing no-production days at its tractor plants at Jaipur for five days and Rudrapur for two days,” said a company spokesperson. “The management does not envisage any adverse impact on availability of tractors in the market as there is adequate stock to serve market requirements.” The company had shut down operations at some of its plants even last year.

M&M, India’s largest tractor manufacturer with a 40 per cent market share, reported a nearly five per cent decline in sales in the April 2012-February 2013 period with an off-take of 205,810 units. In February it reported a nearly three per cent fall in sales to 14,861 units. The company exports between 10,000 and 12,000 tractors annually.

Interestingly, earlier this month, M&M opened a new Rs3 billion tractor manufacturing plant at Zaheerabad in Andhra Pradesh. With a capacity of 100,000 units a year, it is claimed to be the largest tractor manufacturing facility in Asia. “This is a very proud moment and a significant milestone for us,” remarked Anand Mahindra, chairman and managing director, M&M.

In February, the company, which is also the largest tractor manufacturer in the world, rolled out its two-millionth tractor at its Mumbai plant. “The journey till the roll out of the two-millionth tractor has been challenging and exciting for us,” remarks Dr Pawan Goenka, president, automotive & farm equipment sectors, M&M.

The $15.9 billion Indian multinational, which produces tractors in the range of 15 HP to 90 HP capacities, exports products to 40 countries, and has seven manufacturing plants in India, two in the US, two in China and one in Australia.

The automotive and farm equipment major’s plans to shut down operations at two of its plants come in the wake of similar moves by two other leading automakers in India. Maruti Suzuki India and Tata Motors adopted similar strategies to counter the pile-up of inventories. Maruti shut down its Gurgaon and Manesar plants for a day recently and decided to opt for a five-day work week.

“We decided to suspend production at our plants for a day to manage the stock,” said a company spokesperson. “Even in the future we may decide to cut production.” Tata Motors has slashed production of commercial vehicles at its Jamshedpur plant and has also cut production of its passenger car Nano.

Auto industry analysts claim that the industry is going through one of its worst phases in recent years with virtually all segments reporting a sharp fall in off-take.

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THE tractor sector, which was expecting a nearly 10 per cent growth this fiscal, is expected to end the year with a two per cent decline in sales. Demand has stagnated since October 2011 forcing all the major players to cut down on production. India has a production capacity of more than half a million tractors annually, but falling demand is upsetting the plans of the industry players.

Escorts, the third-largest tractor manufacturer, is also operating at two-thirds its production capacity, says S. Sridhar, CEO of the company’s agri-machinery business. “Our optimum capacity is 100,000 units, but we are producing only 65,000 at present,” he says.

Demand for the farm vehicles is falling because of the high cost of funding and a severe drought in many parts of the country, especially Maharashtra. Many tractor producers and dealers are also offering hefty concessions to farmers to push sales.

In many states farmers are also shifting to low-powered (and affordable) tractors; consequently, the sale of such tractors (in the sub-20HP) category have soared in recent months. Recently, International Tractors, part of the Sonalika group, launched a popular 20HP Gardner tractor, priced at Rs300,000, targeting orchards and vineyards. The company has already sold about 2,000 such tractors in recent months.

Tractor manufacturers are also focusing on the export markets, foraying into new geographies. International Tractors, for instance, has seen a 22 per cent growth in exports this year. The company exports to about 70 countries, and plans to expand its geography to add 30 more countries.

The Sonalika group is investing Rs1 billion to enhance production of high-end tractors in the 200-300HP category. There is good demand for such high-powered tractors even in the developed world, says L.D. Mittal, the chairman.

The company has tied up with a Japanese partner to develop a 120 HP tractor for the export market. And despite the slump in the domestic market, it is going ahead with new investments to ramp up production to 120,000 units by 2014. The Sonalika group is investing about Rs1.5 billion for a new facility in Karnataka. More ambitiously, it is also planning to start a tractor manufacturing unit in the US.

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BUT with the government’s continued focus on rural areas and agriculture development, the tractor industry is bullish on long-term growth prospects. By next year, tractor sales could cross the 585,000-mark, as demand from the farm sector is expected to revive.

Consequently, international players are also eyeing the tractor space with interest. Last month, domestic tractor major Escorts tied up with Italy’s Ferrari Tractors to introduce sleek and fuel-efficient models for affluent farmers. The company believes that with many rich farmers buying imported luxury cars, they would also be eager to buy Ferrari tractors.

Rajan Nanda, chairman and managing director, Escorts, feels that there is a growing market for efficient and sleek tractors and Ferrari would be able to meet their needs. The company is importing these high-end tractors – the 26HP model, with four equal-sized wheels and four-wheel drive – from Italy and selling it in India at a special price of Rs800,000.

Nanda says there will be good demand for these tractors, especially from vineyards and orchards. Escorts also has an ‘executive’ range of tractors under the Farmtrac series, which it plans to popularise across India.

The company also expects a shift in demand for higher-end tractors, with a doubling of sales of tractors in the 50HP-plus category. Similarly, it projects a surge in demand for special tractors over the coming years.

American construction and farm equipment major CNH – which emerged following the merger of New Holland NV and Case Corporation in 1999 – is also planning to enhance its offerings in India. Gerald E. Salzman, senior director, Case IH, who was in India recently, said its New Holland Fiat unit is planning to launch mechanical cotton pickers in the country. The company is field-testing a prototype specially designed for the Indian market.

New Holland Fiat India has a tractor plant in Greater Noida in Uttar Pradesh, where it manufactures 35,000 farm vehicles. It sells about 28,000 in the domestic market and exports the rest. CNH introduced its sugarcane harvesters in India and has seen good response from the market. It has sold about 330 such harvesters, each at a price of Rs13 million.

With farm labour costs soaring in India, CNH believes there will be good demand in India for mechanised equipment.

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