Tractors have played major role in farm mechanisation over the years. With growing population ,decrease in percentage of population engaged in agriculture & increasing urbanisation it is important to increase the productivity/hectare by farm mechanisation to meet the ever increasing food demand in India. Govt has set seven year plan to increase farm power availability from current level of 2.02 Kw/ha to 2.8 Kw/ha by 2022 and to establish customer hiring centres in 2.80 lac villages and it has released substantial amount compared to previous years for this purpose.7 years Action Plan .pdf (996.2 KB)
fund rel.pdf (482.1 KB)
Indian tractor industry has grown gradually to reach nearly 6 lac tractor sales in fY 17. If we look at the past few years tractor industry sales has direct correlation with the southwest monsoon in India.
(source:aurum eq/Mahindra ar)
Monsoon during the year 2017 has been slightly below the normal (95% LPA) . Gujarat /Maharashtra and southern states have received normal/excess monsoon which are important markets for VST tractors.
VST has been focusing on growing tractor segment from last few years . Tractor revenue contribution has grown from low of 162Cr (30%)in FY12 to 271Cr (39%)in FY17. Compared to overall industry sales ,VST tractor sales is minimal ,which gives them large opportunity to grow.(table)
VST was selling low Hp tractors 18.5, 22, 17& 27 Hp(launched in fy16) mainly in the Guj and Maharastra where low HP tractors are preferred by cotton/sugar cane farmers due to small width of tractor. Once a dominant player in compact segment (<30 HP) VST has lost market share with competitors entering this segment over the years to current market share of 30% in compact segment. Tractor industry growth was mainly lead my higher HP tractors as evident in the below table.
I have interacted with few farmers and few points:
*most farmers prefers higher HP (35 to 45hp) tractors.
*low HP tractors mostly used to supply water.
*brand of tractor doesn’t matter much to them.
*most important is after sale service
*prefer to own tractor than hiring for rent.
VST has plans to enter higher HP tractor segment from FY19 for which it has recently entered into technology agreement with S.korean company . Selling higher HP tractor will increase the revenue/tractor and margins. Below Table gives rough idea about HP range and price of tractor.( it is not accurate data ,price may vary significantly base don certain models/specification…I have taken average based on availavble data)
Competition and capacity: there are more than ten players with excess capacity which makes tractor industry highly competitive which can put pressure on margins. It is difficult to get exact market share and capacity as many players are unlisted. Mahindra has 44% market share and its capacity may be in excess of 3 lac/yr considering they have sold around 2.5 lac tractors in fy17. TAFE which sell massey ferguson /eicher brand tractor has 25% market share with capacity of 3 lac/yr. ITL selling sonalika has 12% market share with 3 lac /yr capacity. Escorts another listed player has around 10% market share with ability to produce 1lac tractors/yr. Remaining players include HMT,JOHN DEERE,VST…etc.