Tractor business has turned slow in 2019 after three years until FY19. The weak start to the monsoon may emphasise the drop-in tractor sales. The brokerage firms had reduced tractor sales increase estimations for FY20 to around 5-6%, also with the assumption of a regular monsoon in the month of April.
Kotak Securities Ltd states in a report that, “Until 26 June, the 36.8% deficit in rainfall has been the worst since 2014, when the deficit was a tad higher at 38.4%.”
The report added that “this season about, spatial distribution has been unimpressive, too, with 28 out of 36 sub-divisions receiving deficient rainfall.”
A tractor division report by Icra Ltd highlights that the third advance estimation of crop result shows a drop in rabi crop production, linked with poor kharif sowing. Agri-sector analysts further point out that the western and southern areas of the country are more critical compared to others.
Mahindra and Mahindra Ltd from December has nearly a 40% share of the market, has continued posting a year-on-year drop in sales. Escorts Ltd holds a 10-12% share of the market and has been a drop-in sale from March 2019.
The price hikes supported to gain realisations compared to last year. But the weak sales, below operating support, the cost of high index and a rise in stock prices got a toll on profit margins in March. Most firms recorded a 100-150 basis points (bps) reduction in Ebit margin year-on-year last. Ebit profits before interest and tax.
Since with further sales drop of the tractor for June, the quarter is expected to show a double-digit decline over manufacturers.
“Although tractor sales were likely to be weak in the first half of FY20, we have forecast a slight recovery in the latter half. However, a weak monsoon poses a risk to this,” says Bharat Gianani, analyst, Sharekhan.Share this to your,