Mahindra to invest in a new tractor making plant in FY19

Mahindra & Mahindra (M&M), will take a call next financial year on the need to invest in a new tractor making plant.

With two robust years of growth in demand for tractors, including healthy growth in exports the tractor manufacturing industry is looking at more than 15 percent growth in volumes by the end of this financial year.

Pawan Goenka, Managing Director, M&M said, “We had said that we had to increase our growth forecast from 10-12 percent to 12-15 percent for the industry. January has been significantly better than what we had expected. We should cross 15 percent (growth) by end of this quarter.”

M&M tractor volumes surged 18 percent in the April-January period to 2.55 lakh units as against 2.16 lakh units clocked in the same period last year. December volumes jumped 40 percent to 20,647 units, the company had said.

Increased focus towards agriculture and rural infrastructure in the Union Budget 2018, coupled with good progress in Rabi sowing and improved minimum selling price for Rabi crops, is expected to boost positive sentiment and drive demand in the coming months.

As per data shared by the Tractor Manufacturer Association tractor production last calendar year grew by 18 percent to 7.68 lakh as against 6.49 lakh clocked in 2016. This has helped the industry surpass the peak of 2013 which was also the all-time high for the sector.

“Some of our plants are fully utilized, some others are running on one shift. The capacity utilization across plants right now should be around 75 percent. If we have one more year of good double digit growth then we will be in a situation where we would need to invest in a new capacity”, added Goenka.

Domestic tractor industry volumes are set to touch all time high levels in the current fiscal, riding on improved farm sentiments on the back of two consecutive normal south-west monsoons. While augmented cash flows of farm community aided by favourable crop cycles over the past two years coupled with increased income from non-agri sources has been largely driving demand, a combination of other factors such as government support programmes, adequate financing availability and a revival in replacement demand in select regions has also provided an impetus to tractor demand, mentions an ICRA note.

Subrata Ray, Senior Vice President and Group Head, Corporate ratings, ICRA, said, “The government’s thrust of promoting rural development and farmer welfare in the budget remains a positive for the farm sector. The government remains committed towards improving farm credit availability through increased institutional agri credit targets; additionally, continued healthy allocation to schemes aimed at enhancing irrigation penetration and increasing the coverage of crop insurance schemes would help reduce dependence of agricultural sector on monsoon rainfall and improve crop yields and consequently farm incomes. The proposal to create a mechanism to ensure adequate price for crop produce, if implemented successfully, would help aid farm cash flows”.