Photo: Shalini Tahir
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Amritsar, NFAPost: Tractor sales in India, unlike that of other automobiles, are expected to be just a tad lower in 2020-21 (Apr-Mar) as against the corresponding period a year ago due to a well-distributed normal monsoon, rating agency CRISIL Ratings said today.

CRISIL said that despite a 37% year-on-year decline in April and May combined, tractor volumes will likely be barely a percent below last financial year’s level. In 2019-20, around 700,000 tractors were sold in the domestic market. 

This forecast is in sharp contrast to a double-digit fall seen for the rest of the automobile industry. For tractor makers, however, a good monsoon coupled with lower raw material costs and strong balance sheets bode stable credit outlook this year.

The ratings agency expects prices of key inputs such as steel and iron to reduce 4-6%, which would provide manufacturers the headroom to increase discounts to stimulate volumes, if needed.

The Indian Meteorological Department (IMD) has forecast SouthWest Monsoon to be at 102% of long period average (LPA) in calendar year 2020. Importantly, the weather department sees rains well-distributed at 96-107% of the LPA in all the four regions.

“Apart from overall adequacy, monsoon needs to be spatially well-distributed – by geography and timeliness (June-September) – to propel farm incomes and stoke demand for tractors. The IMD’s forecast is very encouraging for tractor volumes this fiscal,” CRISIL Ratings Senior Director Manish Gupta said.

The agency had earlier estimated a fall of 11-13% in domestic tractor sales in 2020-21.

The monsoon”s approach in the country so far has been timely with rains 21% above normal in June to date, the ratings agency said. The forecast for July and August, which are crucial months for kharif crops, is also encouraging at 103% and  97%, respectively, over LPA.

High reservoir levels also support agriculture substantially. Reservoir levels are seen at a massive 94% higher than last year and at 71% above the average of the past decade.

Apart from well-distributed monsoon rains and higher reservoir levels, the recent hike in minimum support prices for major crops by 3-8% this kharif season also augurs well for rural incomes – more so as this follows a bumper rabi crop, CRISIL said.

CRISIL also noted that though the recent locust attack could play a spoilsport, it came when most of the rabi crop had been harvested, and sowing was yet to commence for the kharif season.

The agency said that rural supply chains for tractors have been quick to bounce back from the lockdown, too, with more than 75% dealerships having reopened. That, along with some pent-up demand from March, led to an on-year growth of 4% in domestic tractor sales volume in May, despite the impact of the pandemic.  

“Operating profitability of tractor makers should remain strong at 15 per cent this fiscal. Given limited capex needs, credit profiles are expected to remain healthy, with the debt-to-equity ratio for the industry likely to sustain below 0.1 time. Also, the pandemic’s progress, the distribution and volume of rains, and timely containment of the locust attack will be key monitorables from here,” CRISIL Ratings Associate Director Naveen Vaidyanathan said.

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