India
India Ratings and Research (Ind-Ra) expects tractor sales volumes to grow in low-mid single digits of 3%-6% yoy in FY22, mainly on a higher base following the 27% yoy growth witnessed in FY21.
Though the second covid wave had impacted sales in April-May 2021, with the average monthly sales dropping to 76% of the monthly sales achieved in 4QFY21, the industry witnessed a sharp rebound in sales volume in June 2021, as per data released by original equipment manufacturers (OEMs). Sales volume is likely to pick up from 2QFY22 as the localised lockdown/restrictions have been relaxed. However, given that 1Q is generally a critical quarter with seasonally higher sales (around 33%), especially in May and June for land preparation for the Kharif season, the sales lost are unlikely to be recovered in the subsequent part of the year.
Ind-Ra also believes that tractor purchase may be deferred in favour of saving for/incurring higher medical expenses amid the anticipation of a third covid wave. In case, the country witnesses a third wave which is as severe as the second one resulting in localised/ nationalised lockdowns, the growth on yoy basis could be flattish.
The second covid wave has been more widespread and severe in rural India compared to the first wave which was largely restricted to urban regions. Ind-Ra believes the second wave and the anticipation of a subsequent wave could alter the consumption preference in rural regions in favour of saving for contingent medical expenditure. Moreover, lower income levels in 1QFY22 as well as loss of lives could dampen consumer sentiments and hence tractor purchase may be deferred.
Collectively, the top five states accounting for 56% of the tractors sold in India, recorded around 34% of the total covid-19 cases in India, with 40%-75% of their cases, amid the second wave, being recorded in rural districts.
Key inputs including steel and rubber, which account for nearly 70% of the weight of a tractor, have witnessed a sharp spike in prices increasing 30% and 7% respectively over January-May 2021.
Ind-Ra expects the tractor industry to record 7%-10% yoy revenue growth in FY22, driven by volume growth and increased realisation per tractor and the credit profiles of tractor OEMs to remain resilient in FY22, due to low debt levels for most major players.
Source: India Ratings & Research Press Release
Image Source: India Ratings & Research Press Release
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