Farm Fortune: Tractors' sales traction to continue in FY22

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SME Times News Bureau | 15 Feb, 2021
Tractor sales are expected to maintain healthy traction during the upcoming financial year on the back of high agricultural growth as well as rural infra push.

Besides, easy availability of finance and higher rabi acreage will support tractors demand.

"Sales momentum in the tractor industry is expected to continue in FY2022, aided by an expectation of continuation of healthy farm cash flows," said Shamsher Dewan, Vice President & Sector Head - Corporate Ratings, ICRA.

"An early and healthy rabi sowing bodes well for the farm cash flows in the upcoming harvest, and should help maintain the buoyant farm sentiments."

Notably, the industry has reported an aggregate volume growth of 11 per cent year-on-year in 2020.

The YoY domestic volumes have risen by 19.9 per cent in April-Jan FY21 period to 7,38,685 units.

"This has been the least affected sector by Covid though production was affected in April and May," said Sridhar V, Partner, Grant Thornton Bharat LLP.

"The trend is expected to continue with a lot of support from the government, especially subsidies to venture into mechanisation, support on MSP and impending infra developments through agriculture cess should help the farming sector and thereby increase their earnings to further impact the mechanisation of the farms."

However, base effects might hamper the volume growth numbers as the segment has continued to be robust over the last 2 years.

The tractor sales volumes in CY20 recorded a growth of 11 per cent despite the disruption brought about by the Covid in the April-Jun quarter.

As per data by Federation of Automobile Dealers Associations (FADA), tractors' registration rose 11.14 per cent on a YoY basis in January to 60,754 units.

"It will be a challenge to sustain such a strong growth trajectory over FY22," said Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research.

"We nevertheless, expect the volume growth to continue albeit at a moderate rate of 7-8 per cent."

"We believe that a part of the demand growth should continue well into next year given the thrust on rural infrastructure in the Union Budget 2021. However, any potential risks such as an inadequate monsoon in the coming year may limit the growth print to single digits in FY22."

Furthermore, budget FY22 proposals such as healthy allocations towards various ongoing farmer welfare schemes will support the demand for agriculture equipments.

"The budget proposals like higher farm loan disbursals and higher allocation under Rural Infrastructure Development Fund and Micro Irrigation fund is also likely to support farm sector," said Shruti Saboo, Associate Director, India Ratings and Research.

According to Dewan: "Over the short term, enhanced focus or outlay of the government on procurement of crops is likely to aid farm cash flows, and help sustain tractor demand."