Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Monsoons hold the key to profits - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jan 15, 2000

    Monsoons hold the key to profits

    India is the world's largest tractor market with a density of about 10.5 tractors per thousand hectares of gross cropped area (GCA) compared to the world average of 19 tractors. However in the agriculture intensive states of Haryana, Punjab and Uttar Pradesh, the penetration rate is 26 tractors per thousand hectares.

    The tractor market in India has six main players - Mahindra & Mahindra (M&M) (market share 28.5 percent), Punjab Tractors (Swaraj) (18.4 percent), Escorts (18.6 percent), Massey (17.4 percent), Eicher (7.7 percent) and HMT (4.9 percent).

    The tractor market can be broadly divided into 5 categories viz., less than 20 HP, 20-30 HP, 30-40 HP, 40-50 HP and above 50 HP. The main segment of the tractor industry is the 30-40 HP segment accounting for more than half the total sales. The share of this segment has been growing rapidly over the last four years.

    During April - December 1999, the tractor segment showed a positive growth of around 8.3 percent (year on year). The main drivers of tractor demand are credit availability and agricultural production. The availability of credit from government sources and the boom in agriculture buoyed the performance of this sector even as the domestic industrial production slumped in financial year 1998 and 1999. The tractor segment has recorded a compounded annual growth rate of 8% over the last 15 years.

    Tractor majors rev up

    The prospects for the tractor industry too have brightened over the years. Subsequent governments in recent years have initiated efforts to improve the standard of living in rural areas. The measures to accomplish this involve access to cheap credit, better irrigation and infrastructure, fertilisers and pesticides and high yielding variety of seeds. All these factors aim at increasing the per capita incomes in rural areas and this is expected to have a direct impact on the demand for tractors. Added to this are measures initiated to increase the amount of arable land (currently estimated to be 170 million hectares) in the country. This too should help in driving up the demand for tractors.

    That the tractor market in India offers a lucrative opportunity to various players is evident in the international interest shown in this sector. John Deere, New Holland and SAME are entering the Indian market, either on their own or through joint ventures. The domestic players too have been getting aggressive to tap the boom in the tractor market. The aggregate domestic capacity is expected to grow 15 percent in financial year 2000 to over 382,000 units.

    The tractor industry has had a dream run over the last decade. However, things may get murky in the coming years. The prime concern stems from the sharp build up of capacities in the domestic industry. This is likely to lead to deterioration in margins as manufacturers slug it out to maintain/gain market share.

    Added to this is the presence of foreign companies. This will further intensify competition as these companies look at gaining a foothold in the market. As international players have an edge in terms of technology, domestic players could find themselves at a disadvantageous position.

    Finally, the biggest concern pertains to the success of the monsoons in the coming years. A failure of the same could create a supply glut in the market as demand collapses. This could have fatal consequences for the industry.

    The tractor manufacturers need to hedge their performance in the domestic markets. This could be achieved by targeting the export market. The export market is however very competitive and skewed towards larger tractors and this could pose a challenge for the domestic players. Nonetheless, a successful venture in the international markets could provide a much-needed hedge to the domestic players.



    Equitymaster requests your view! Post a comment on "Monsoons hold the key to profits". Click here!


    More Views on News

    Tata Motors Ltd: Another Disappointing Quarter, Management fails to Perform! (Quarterly Results Update - Detailed)

    Aug 14, 2017

    Tata Motors Ltd disappoints again for both India and JLR business. Management commentary indicates a slow year ahead.

    Maruti Suzuki Ltd: Bumpy First Quarter. GST dents Margins! (Quarterly Results Update - Detailed)

    Aug 2, 2017

    GST realted cost impacts Margins, Management expects good year ahead.

    Hero Motocorp Ltd: Riding on the Scooters Growth, Maintains Margins! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    Good Recovery in the Scooters market, expects pick up in exports too.

    Bajaj Auto Limited: Recovery in Exports but Domestic Disappoints! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    New Export Markets picking up, Management expects good recovery in domestic Three wheeler market.

    Bajaj Auto Limited: Finishes the Year with Headwinds. Poised for a Recovery Ahead? (Quarterly Results Update - Detailed)

    Jul 6, 2017

    Ends the year on a Flat note. Expects good recovery in the exports market.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)