Drop in tractor sales due to delay in monsoon

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.

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