Mahindra & Escorts Tractor Sales Dip Amid Monsoon Woes, Hope for Festive Rebound

Tractor sales in India faced a 4% drop between April and August this year, with a modest 1.14% year-on-year growth from January to August. Weak monsoons reduced kharif crop earnings due to floods, lower mandi paddy prices and export duties have all contributed to this decline.

While the growth in tractor sales was robust at 24.4% in January, it dipped to -11.1% in April and a mere 1.1% in August, causing concern for the industry. The impact of a sub-par monsoon on rural cash flows is becoming apparent, and there are fears of lower kharif yields and cash flows due to inadequate monsoon precipitation.

The delayed festive season and uneven monsoon distribution have affected September 2023 volumes, leading to downside risk in the industry's forecast for FY2024. However, hopes are now pinned on a smart recovery in Kharif sowing and the start of the festival season in October and November.

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Mahindra & Mahindra and Escorts Kubota are optimistic about the coming months, anticipating better sales numbers with renewed rainfall and farmers' kharif earnings. Favorable factors such as government support, Minimum Support Prices (MSP), and terms of trade for farmers maintain an outlook of low single-digit growth.

Hemant Sikka, President of Mahindra & Mahindra's Farm Equipment Sector, expressed optimism, noting that the recent normal rains in September have brought the overall monsoon close to the expected levels. This, in turn, is expected to have a positive impact on Rabi sowing, particularly in the Central, Northern, and Western regions of India. Sikka cited several contributing factors, including strong government support for agricultural and rural development, higher Minimum Support Prices (MSP), and advantageous terms of trade for farmers. As a result, he envisions a favorable outlook for the industry, anticipating modest single-digit growth shortly.

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RBI reports that kharif sowing was nearly at par with 2022, alleviating concerns about the deficit. CRISIL predicts a degrowth of up to 5% in domestic sales for FY2024 but expects the industry momentum to pick up during Q3.

Not only domestic sales, but exports have also suffered due to the recessionary environment in the US and the EU, exacerbated by high inflation, the Ukraine war, and sanctions on Russia.

Sikka points out that the extent of farm mechanization in India is currently around 40-45%, a significant contrast to countries like the US (95%), Brazil (75%), and China (57%). This notable difference serves as a compelling reason for the eventual resurgence in domestic tractor sales.

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