Project Report On Tractor Industry

Submitted by: Vijay Gaur Urvashi Dabas Jyoti Dabas Avijit Arora Kirti Chabra Yesaswi Chintada Srisha Rani Laxmi Ninan Divyadeep Kachhawaha Nishant Ramela Gaurav Gupta Yash Srivastava

Pranab Mukherjee has made the following announcements for the agriculture sector: y Provision of US$ 88. According to the Centre for Monitoring Indian Economy (CMIE). cashew nuts. ginger. 1. Jharkhand. pulses.1 Background India is mainly an agricultural country.02 million to increase the green revolution to the eastern region of the country comprising Bihar. West Bengal and Orissa .1 per cent to 98. cotton. India is the largest producer of coconuts. India has become the world's largest producer across a range of commodities due to its favorable agro-climatic conditions and rich natural resource base. It is also the second largest producer of rice. The agribiotech sector in India has been growing at a whopping 30 per cent since the last five years. sugar. bananas. Eastern Uttar Pradesh. Mr. milk and dairy products.8 million tonnes. wheat. Agricultural biotech in India has immense potential and India can become a major grower of transgenic rice and several genetically engineered vegetables by 2010.1 per cent and wheat production is projected to remain at the same level of 80 million tonnes as estimated for FY 09 while rice production is projected to increase by 1. crop production is expected to rise by 1. Production of coarse cereals and pulses is also expected to rise in FY 10.2 Government Initiatives for Agriculture Sector In Budget 2010-11.7 percent of India¶s GDP in 2009 and employs about 52 percent of the population. the Finance Minister. Agriculture in India accounts for approximately 15. Chattisgarh. mangoes.CHAPTER 1 INTRODUCTION 1. and it is likely to sustain the growth in the future as well. turmeric and black pepper. fruits and vegetables.7 per cent during FY 10 and foodgrain production is expected to increase by 1.

the time frame was extended by six months up to December 31. The subsidy would cost the exchequer about US$ 826 million in the fiscal year 2009-10 . For the year 2010-11 the agricultural credit flow target has been set at US$ 82. 2009. the government has decided to set up five more y y The government has already approved 60 Agriculture Export Zones (AEZs) Services related to agro and allied sectors have been thrown open to 100 per cent foreign direct investment (FDI) through the automatic route y The Cabinet has approved 2 per cent interest subsidy on bank loans taken by farmers. 2009 to pay 75 per cent of their over dues.000 pulses and oil-seed villages in rain-fed areas in 2010-11 and to provide an integrated intervention for water harvesting.y Provision of US$ 66. Under the Agricultural Debt Waiver and Debt Relief Scheme (2008). farmers having more than two hectares of land were given time up to June 30.02 million to organize 60.53 billion y The one-time bank loan waiver of nearly US$ 14. In the 2009-10 Budget. y In addition to the 10 mega food park projects already being set up. watershed management and soil health to improve productivity of the dry land farming areas y Banks have been consistently meeting the targets set for agricultural credit flow in the past few years. This has been further extended till June 30.6 billion to cover an estimated 40 million farmers was one of the major highlights of the 2008-09 Budget. 2010.

Plant Ptrotection Harvesting and Threshing Post Harvest and agro processing Tractors Levelers Ploughs Dozers Scrapers Ditchers Terracers Drill Seeder Planter Dibbler Transplanter Shovel/Plough Harrow Tiller Sprayer Duster Weeder Hoe Harvester Thresher Digger Reaper Sheller Sickle/Dao Seed Extractor Dehusker Huller/Dehull er Cleaner Grader Mill Dryer . Seedbed Preparation Sowing and Planting Weeding . Tillage.1.3 Agricultural Equipments The various processes in Agriculture involve the use of multiple equipments at each stage: Land Development.Intercultivation.

% 2009 2008 GR% 2009 2008 151807 125795 20.3% 22.32% of the market.7% 361141 308173 17.CHAPTER 2 REVIEW OF LITERATURE 2.0% 13. The industry is dominated by Mahindra and Mahindra (M&M) with a market share of around 42.0% .03%).e.71%) and New Holland Fiat India Pvt.9% 31462 27426 14. L&T-John Deere (7.7% 8.02%). the industry has seen some consolidation with M&M acquiring Punjab Tractors (PTL) and TAFE acquiring Eicher Tractors. with the 31-40 HP category alone accounting for around 50% of this.141 with a growth of 17.4% 1.0% 5.1 Overview of Tractor Industry in India: The Indian tractor industry has around 13 national players and a few regional players. 308173.3% 0. 2.3% 25342 15783 60.8% 47046 42876 9.2 % over what sold in 2008 i.7% 13. Ltd. and International Tractors Limited (8.3% 614 1471 -58.9% 22. (5.8% 80609 70178 14. During the last few years.S.3% 1.1 Market Share of various competitors in Indian Tractor Industry: Total domestic tractors sold in 2009 from January to December was 361.0% 100.04%. JAN-December Manufacturer M&M GROUP TAFE GROUP ESCORTS ITL NHFI JOHN-DEERE HMT FML SAME TIV Calendarised.5% 1537 4188 -63.7% 8.2% 0.0%).6% 7.2% 100. Most of the tractors sold in India are in the 21-50 HP range. followed by Tractors and Farm Equipments TAFE.1% 40.4% 4.1% 1.1% 4694 4114 14.7% 42.9% 18030 16342 10.3% 0.9% 5.1. The other major players include Escorts (13. which holds around 22.Only Domestic Jan-December M.

Gujarat. drawing water and powering agricultural implements. which remain a key factor in determining agricultural production. Also.03% M&M GROUP 42. In addition. Better irrigated States like Punjab and Haryana have a high tractor density (over 100 per 1. Andhra.Market Share Jan-Dec 2009 FML JOHN-DEERE HMT 0. India is one of the largest tractor markets in the world. there has been a sharp increase in cash purchases. the tractors are also being used for non-agricultural purposes including haulage in construction and infrastructure .000 hectares. most tractor sales are done on credit even as over the last few years financial institutions. a directed-lending mechanism of the Government of India.000 hectares). On an all-India basis. land reclamation.43% 1. besides China and the USA. The prospects of the domestic industry are highly linked to monsoon rains.04% TAFE GROUP 22.99% ITL 8. Himachal. tractor penetration remains low at around 13 per 1. during 2009-10. MP and West Bengal have low levels of tractor penetration²a pointer to the substantial growth potential that the latter set offers. tractors find application in activities such as harvesting and irrigation. Historically. Tamil Nadu. lately. reflecting the rise in disposable incomes in the rural markets. Most of the tractor financing done by banks comes under priority sector lending.02% 4.32% The long-term prospects of the Indian tractor industry are highly dependent on Government policies for the agriculture sector.30% NHFI 7.71% ESCORTS 13.17% SAME 0. In terms of volume. Maharashtra. have resorted to some tightening of credit norms. while States like Rajasthan. Besides being used in farming. facing an increase in their non-performing assets (NPAs).

in Karnataka and Tamil Nadu. Significant revival in 2009-10 happened despite the drought-like conditions in many States during the Kharif1 season because of many factors like: y y Higher minimum support price (MSP) for crops Greater ability of farmers to make cash purchases (including the usage of Kisan Credit Card which are increasingly being used to part-finance tractor purchases). being influenced by cyclical trends.3% in sales volumes during the year 2009-10. 2008-09). The Indian tractor market. 2008- . Tractor volumes reported strong growth in the northern and western regions during 2009-10. However. persuading even farmers with mediumsized land holdings to either rent or purchase tractors. Due to infrastructure projects and rural employment schemes.projects which has expanded the tractor market. thus. especially in the second half (H2) of the year.9% in 2009-10). Apart from these factors non-agricultural use of tractors (for haulage in construction and infrastructure projects) continued to increase. 2. The southern region reported moderate performance (growth of 11. is expected to grow in future and remain one of the biggest tractor markets in the world.2 Present Scenario & Industry Economic Features: Tractor industry in India reported a strong growth of 28. largely reflecting cyclical corrections. employment opportunities has increased and availability of labour for agricultural activities continued to decline. benefiting tractor demand. in terms of tractor demand being impacted largely by de-growth in Andhra Pradesh a key southern market where rainfall was irregular in 2009-10. benefiting from a low base (H2. y Enhanced employment opportunities (with rural employment schemes being implemented by the Government of India) y An improved credit environment and continuation of replacement demand. ending cyclical correction that had pulled down tractor sales in preceding years. and crop patterns (monsoon). tractor demand has been fairly volatile. After four years of strong growth during 2003-07. the fiscal years 2007-08 and 2008-09 both reported a marginal decline in tractor sales volumes. higher MSPs for rice along with some revival of interest of public sector banks (PSBs) in tractor financing led to strong tractor sales volumes. during H2. availability of finance. Historically. In addition to the cyclical dips.

While tractor financing has traditionally been done by PSBs. the industry also had to cope with the liquidity crunch. growth in farm mechanisation and farmers¶ remuneration. of late. and low interest rates. strong Governmental focus on availability of finance for agriculture mechanization tools and on rural development. the long-term demand drivers for the industry remain robust. The currently low levels of tractor penetration in India. In . have been able to increase their penetration of this market on the strength of faster loan processing and use of more liberal credit norms. The long up-cycle in demand was supported by several factors. The growth also came on a low base. even as financiers resorted to more stringent lending norms in the face of rising non-performing assets (NPAs). which pushed up interest rates. the situation improved during 2009-10 as credit availability improved on the strength of greater liquidity in the banking system. The cyclical correction during 2000-03 had been aggravated by the build-up of channel inventory with the major players having pushed aggressively for larger sales. with tractor demand being closely linked to agricultural output. despite their higher interest rates vis-à-vis the PSBs. Chart 1: Annual Trends in Tractor Sales Volumes Chart 2: Monthly Trends in Tractor Sales Volumes Source: TMA Report 2010 and ICRA The tractor industry reported a compounded annual growth rate (CAGR) of over 20% in volume terms during the period 2003-07. including excise duty exemptions on tractors (2004-05). and the growing emphasis on tractor exports augur well for the industry. improved availability of finances for tractor purchase. However. thrust on rural development. increase in the use of tractors for non-agricultural purposes.09. private banks and non-banking finance companies (NBFCs). with the preceding three fiscal years (2000-03) having witnessed a prolonged phase of volume correction. Overall.

during H2 2009-10. the tractor majors increased the prices with the reversal of commodity prices and the discounts have also come down. the situation improved on the cost structure front in H1 2009-10 with the softening of commodity prices preparing the ground for the industry to earn higher profitability margins. which together accounted for around 50% of the total tractor sales in India during 2009-10. However.e. Madhya Pradesh (MP). 2008-09. 2008-09 also impacted the profitability of the original equipment manufacturers (OEMs) i. While the OEMs did not lower the listed sales price of tractors. with most of the States reporting positive growth during the year. This is an accepted practice in the industry given that once the prices are lowered it is very difficult to raise them subsequently. the tractor manufacturers. The pickup in volumes also lowered the overhead expenses for the tractor manufacturers. the benefit of lower steel prices was passed on to the end customers via discounts.3% during 2009-10. The tractor industry witnessed a strong y-o-y growth of 28. and Maharashtra. However. because of the high price inventory they were carrying. 2.3 Industry Trends by Region The biggest markets for the tractor industry include States like Uttar Pradesh (UP).contrast to this phase of cyclical slowdown. with volumes declining by around 3%. boosting their profitability. The demand slowdown during H2. Rajasthan. Chart 3: Trend in Tractor Sales across regions Chart 4: Trend in Tractor sales across States Source: TMA Report 2010 and ICRA . Andhra Pradesh (AP). the one that happened during 2007-09 was less severe. despite the intermittent tightening of the liquidity situation during H2.

L&T John Deere (LT-JD) was able to increase its market share in the region by around 250 bps in 2009-10. where M&M has been traditionally weak. In the northern region. the company increased its market share by 140 bps during 2009-10. LT-JD performed well in 2009-10. even as TAFE lost market share by around 90 bps there. In the western region too. increasing its market share by 190 bps. However. . M&M was able to raise its market share by around 140 bps in 2009-10 at the expense of Escorts and TAFE.Movement in Regional Market Shares of Select Players 2009-10 vs. mainly at the expense of M&M (market share down by 140 bps) and Escorts (down by 140 bps). even as ITL and Escorts lost market shares by around 90 bps and 60 bps respectively.4% market share during 2009-10). ICRA¶s estimates M&M remains particularly strong in the southern region (50. In the eastern region. 2008-09 (bps) Source: Industry. there.

Chart 5: Trend in State wise market share The northern region remains the largest tractor market in India with sales of around 1.7% in volume sales in 2009-10 over the previous fiscal. increased infrastructure development activities (especially highways) led to appreciation in land values and use of tractors for non-agricultural purposes. This region reported a growth rate of 35.67. limited availability of labour (forcing higher mechanisation). . Punjab. The northern region benefited from higher MSPs (for crops). Additionally.000 units as of 2009-10. which increased the availability of cash with them. Feedback from industry players suggests cash purchases (including purchases using Kisan Credit Card) in some northern States increased to 35-40% of the total tractor volumes in 2009-10 from 10-15% in the past. Haryana and Rajasthan. In some cases. with the key contributors including UP. and increasing non-agricultural use of tractors. farmers also received compensation for the Government¶s acquisition of select land patches (adjoining highways).

7% over the previous fiscal²benefiting particularly from the strong performance that Maharashtra. The western region reported sales of around 92. tractor volumes continued to report strong growth in 2009-10. Gujarat and MP posted during H2. de-grew by 10. however. In the eastern region. with the preceding four to five years having witnessed a large and sustained volume growth. growth in tractor volumes was relatively subdued in 2009-10 (around 24% y-o-y) as compared with the figure for the northern region as a whole. due to lower kharif output on account of deficient rains and inadequate financing availability.000 units in 2009-10.Tractor volumes in UP grew by 42. being driven mainly by the higher MSPs announced for paddy. tractor volumes grew 66% over 2008-09 to around 29. Karnataka. and greater availability of retail finance. Overall. The other big market in the southern region. 2009-10 included a benign base effect. 2008-09). volume growth is expected to moderate . where tractor penetration had been low historically. The Bihar market. many financiers remained reluctant to finance tractor purchases in some States like Bihar. as the benefit of a low base get diluted gradually. thereby accounting for over 50% of the total sales in the eastern region. 2009-10 (55% y-o-y growth over H2. this factor apart. tractor volumes remained strong for the fifth straight year in 2009-10 (y-o-y growth of 42%). the de-growth of 2009-10 was also aided by irregular monsoons. in Bihar.4% in 2009-10. higher crop prices (of sugarcane and cotton in Maharashtra. The AP market has been undergoing a volume correction since 2007-08. AP. Tractor sales in Rajasthan were especially low in H2. albeit on a small base. in the eastern region. and went up by 53. has shown sustained growth over the last few years and become one of the important markets for the tractor industry.9% over the previous fiscal. 2009-10 reporting particularly strong growth (around 51% y-o-y) mainly on the back of high sugarcane prices for the kharif crop and improved irrigation facilities. In Rajasthan however. Nevertheless. and of cereals and soyabean in MP). While most States in the region reported healthy growth. reported growth of 74% in tractor volumes in 2009-10 mainly on the strength of higher MSPs for rice.7% during 2009-10. going forward.000 tractor units during 2009-10²a growth rate of 35. with H2. with the growth rate being around 11. In the case of Punjab. The performance of the southern region in terms of tractor sales was relatively modest during 2009-10.8% over 2008-09. Within the region however. which is the largest tractor market in the south. growth in tractor volumes is expected to moderate. 2009-10 versus H1. 2009-10. The factors contributing to the strong growth in the region during H2.

tractor sales were flat during H1. reported in 2009-10. 2009-10 mainly because of improved retail financing by the PSBs. the biggest market for this segment. the revival was led by UP. Karnataka and Madhya Pradesh. . In 2009-10 however. but the performance improved in H2. In 2008-09. with 31-40 HP tractors accounting for around 47% of the total industry volumes. which accounts for around 23% of the total industry volumes. This segment grew by around 10% during 2009-10. In Tamil Nadu. 2009-10. the 31-40 HP categories had reported sales of 157. 2.in 2010-11 because of the base effect. which was about the same as the previous year¶s figure but lower than the 2006-07 statistic by 7%. The >51 HP segment of the Indian tractor market also underperformed the industry growth rate in 2009-10 mainly because of the de-growth in the exports which is a key demand area for these high HP tractors. with the volume growing by 22% over 2008-09.602 tractor units.4 Industry Trends by Tractor Horse Power (HP) The Indian tractor market has traditionally been a medium HP market. this category reported a strong revival. The main reason for this underperformance was the low growth that the southern region. The other major segment in the Indian tractor market is the 41-50 HP range. thereby underperforming the growth in overall tractor volumes (around 19%) that year.

Indian tractors have a relatively marginal presence.1 Some Long-Term Demand Drivers for the Industry Low penetration of tractors in Indian agriculture Indian agriculture is characterized by low farm mechanization. and some Asian countries being the top destinations. and high dependence on monsoon rains (in the absence of adequate irrigation facilities). The industry leader. Government support for the agricultural sector: Although agriculture contributes just around 20% to India¶s GDP. with measures such as nil excise duty on tractors (even the excise duty on tractor parts has been lowered from 16% to 8%) and inclusion of tractor financing under priority sector lending (by PSBs) serving as long-term demand drivers.CHAPTER 3 DRIVERS OF INDUSTRY 3. South America.900 tractors during 2009-10. has acquired Yancheng Tractors. with the USA. which bodes well for tractor demand over the long term. fragmented land holdings. Africa. to improve its presence in the country. Mahindra and Mahindra (M&M). it provides employment to a large rural population. . While this does indicate the relative backwardness of Indian agriculture.000 hectares as against the global average of 19 and the US average of 29. it being a key demand facilitator. with sales being largely restricted to the hobby farming segment. Financing of tractor purchase is of great significance for the industry. In the developed markets. it also points to the significant scope that exists for raising tractor penetration. The industry exported a total of around 37. The tractor industry benefits significantly from the Governmental focus on agriculture. Export of tractors: Indian tractor manufacturers have been increasingly targeting the international markets over the last few years. the fourth largest tractor manufacturer in China (in terms of FY2008 volumes). Tractor penetration in India is low at around 13 tractors per 1. which is why the sector remains a strong focus area for the Government.

although larger players could benefit from scale economics. which along with the current shortage of farm labour and consequently rising labour costs. . The industry¶s profitability is however expected to remain moderate in the medium term. may be expected to lead to greater mechanisation and use of tractors.CHAPTER 4 FUTURE EXPECTATION 4. While some States in the northern region have achieved high levels of tractor penetration and farm mechanisation. and fiscal stimulus for rural development. the continuing firmness in the prices of agricultural products. ICRA expects the long-term growth rate for the Indian tractor industry to trend around the historical average of 6-8%. higher credit disbursements for agriculture. tax exemptions. on an all-India basis. The long-term prospects for the Indian tractor industry hinge on agricultural growth and Government support in areas such as financing availability. they would remain vulnerable to adverse changes in commodity prices. Moreover. As for margins. supported by increasing tractor penetration. Overall. the penetration remains low.1 Expectation from Industry: Tractor sales are expected to remain healthy in fiscal 2010-11. while they have seen an improvement in 2009-10. given the good rabi crop this time around. and the healthy monsoons anticipated during the coming kharif season. improving farm mechanisation levels (with labour availability in rural areas declining). considering the high competitive intensity and low capacity utilisation levels. increasing non-agricultural use of tractors. and sharper Governmental focus on the farm sector (larger budgetary allocations) are also expected to encourage tractor sales.