Agricultural machinery manufacturers see a faster recovery of sales. Mahindra & Mahindra Ltd (M&M) reported a 2% increase in domestic tractor sales in May, while the leading tractor manufacturer, Escorts Ltd, reported a decrease in tractor sales of only 0.5% for the month.
In both cases, however, exports fell sharply, possibly as a result of logistical problems and disruptions on various foreign markets caused by the coronavirus outbreak. However, both tractor manufacturers are doing much better than car manufacturers such as Maruti Suzuki India Ltd and Hero MotoCorp Ltd, which reported a drop in domestic sales from 82% to 88% last month. Manufacturers of commercial vehicles such as Ashok Leyland Ltd. recorded a 90% drop in domestic sales.
View the full image
Graphs : Satish Kumar/Mint
Click here to enlarge the image
M&M’s passenger and commercial vehicle activities were also closed down. Total sales of the company’s passenger, commercial and three-wheeled vehicles fell by 79% in May, reflecting the impact of the ongoing blockade to curb the spread of the coronavirus.
However, the timely relaxation of restrictions on agricultural activities and the rural sector allowed M&M and Escorts to get back on their feet in May. Both companies reported an 83-87% decrease in domestic tractor sales in April. Retailers in rural areas are also subject to fewer constraints than their urban counterparts, as Covid-19 is less common in rural areas. Sales of fertilisers and agrochemicals have visibly improved based on the financial results and feedback from other suppliers of agricultural raw materials, such as Coromandel International Ltd, Rallis India Ltd and UPL Ltd. Last season’s rabid harvests were better than last year and harvest losses were also limited due to less favourable weather conditions. Predictions of a normal monsoon this year and an increase in the minimum support prices augur well for the Harif season and the investments in agriculture.
The second IMD (Meteorological Department of India) forecast of a well distributed normal monsoon, as well as healthy reservoir levels, is expected to help maintain the momentum of investment in agriculture, according to a note from JM Financial Institutional Securities Ltd. of June 2, 2009. June. The demand for tractors is relatively stable according to analyst research of the chain. We believe that the tractor segment is expected to become the main beneficiary of the rabies harvest, the high government purchases of wheat, the expectations of a normal monsoon and a sharp 70% increase in funds provided by the government under Mahatma Gandhi’s National Employment Guarantee Act. We see risks to the volume of our tractor industry at -15%/+25% in FY 21/22F, according to a Nomura Research rating of 2. June.
One of the restrictions investors have to pay attention to is financing. Most tractors are bought on credit. Any rejection of risk by financiers may limit the sale. Nevertheless, tractor manufacturers are certainly in a better position than the rest of the automotive industry.
Sign up for the newsletter.
* Enter a valid email address
* Thank you for subscribing to our newsletter.