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A REPORT

ON

ANALYSIS OF
TRACTOR INDUSTRY
IN INDIA
Submitted to Prof. Dr.Utpal Chattopadhyay as a part of
PGDIE curriculum

Team Members
Pankaj Tadaskar (70)
Parasram Pariar (72)
Ramachandra Chikhalagi (83)
Ramesh Babu (84)
Sudhir Kumar (101)
Sunit Mhasade (105)

31st August, 2010


INDEX

1. INTRODUCTION ............................................................................................................................... 3
2. HISTORY .......................................................................................................................................... 5
FOREIGN COLLABORATION ................................................................................................................. 7
3. INDIAN TRACTOR MARKET OVERVIEW ........................................................................................... 8
i) INDUSTRY TRENDS BY REGIONS................................................................................................ 11
ii) INDUSTRY TRENDS BY STATE .................................................................................................... 13
iii) REGION-WISE MARKET SHARE OF MAJOR PLAYERS ................................................................. 16
iv) INDUSTRY TRENDS BY TRACTOR HORSE POWER (HP) .............................................................. 17
4. MARKET CONCENTRATION ........................................................................................................... 19
i) MARKET CAPITALISATION IN TERMS OF VOLUME.................................................................... 19
ii) MARKET CAPITALISATION IN TERMS OF TURN OVER ............................................................... 20
iii) MARKET CAPITALISATION IN TERMS OF SALES......................................................................... 20
5. TRACTOR INDUSTRY IN TERMS OF FINANCIALS............................................................................ 22
i) P/E RATIO .................................................................................................................................. 22
ii) EARNINGS PER SHARE ............................................................................................................... 22
iii) PAT (PROFIT AFTER TAX) ........................................................................................................... 23
6. EXPORTS ........................................................................................................................................ 25
7. SOME LONG TERM DEMAND DRIVERS FOR THE INDUSTRY ......................................................... 26
8. FUTURE GROWTH IN TRACTOR INDUSTRY ................................................................................... 27
9. REFERENCES .................................................................................................................................. 28
1. INTRODUCTION

Tractor industry plays an important part as agriculture sector has a major contribution to
India’s GDP. Tractors are part of agricultural machinery industry. Tractors came to India
through imports and later on were indigenously manufactured with the help of foreign
collaborations. The manufacturing process started in 1961-62. Indian tractor industry is
relatively young but now has become the largest market worldwide.

Higher productivity and greater output are the two major contributions in farm
mechanization. Tractors form an integral part of farm mechanization and have a crucial role to
play in increasing agricultural productivity. Tractor is a highly versatile piece of machinery
having a multitude of uses, used in agriculture both for land reclamation and for carrying out
various crop cultivation and also employed for carrying out various operations connected with
raising the crops by attaching suitable implements and to provide the necessary energy for
performing various crop production operations involved in the production of agricultural
crops. Tractors are capital intensive, labour displaying used as a mode of transport, in
electricity generation, in construction industry and for haulage operation. It has now become
an integral part of farm structure .The application of tractor for agricultural activities which
swept India during the last twenty years have erased the problem of farmers. Farm
mechanization program in India aims to integrate the use of available human and animal farm
power with mechanical sources of power for increasing the productivity.

Indian tractor industry, comparatively young by world standards have expanded at a


spectacular pace during last four decades. Consequently it now occupies a place of ride in
India's automobile industry. U.S.A., U.S.S.R. and only a few Western European countries
exceed the current production of tractors in India, but in terms of growth India's growth is
unmatched even with countries of long history of tractor manufacturing.
The spectacular achievement reflects the maturity and dynamism of tractor manufacturers
and also the policies adopted by the government to enable it to effectively meet the demand.
The tractor industry in India has made a significant progress in terms of production and
capacity as well as indigenisation of technology. It is a typical sector where both imported
technology and indigenous developed technology have developed towards meeting the
overall national requirements. The global spotlight on tractors manufacturers certainly in
terms of volume seems to be swinging away from the USA, UK and Western and Eastern
Europe towards India where growth in the number of producers and the total volume in
recent years have been impressive. In India tractor industry has played a vital role in the
development.

India's gross cropped area is next only to United States of America and Russia and long with
fragmented land holdings has helped India to become the largest tractor market in the world.
But it drops to eight position in terms of total tractor in use in the country when compared to
international figures, only 3% of total tractors used all over the world . It is to be noted that
while the overall automobile industry is facing recession the tractor industry is growing at
9%.About 20% of world tractor production is carried out in our country only. The arable land
in India is high as 12% of the total arable land in the world. Tractor market in India is about Rs
6000 crore. On an average around 400000 tractors are produced and their sale is
260000.Uttar Pradesh is the largest tractor market in our country. One out of every four
tractor is being Purchased here. Indian tractor market has to be viewed considering its
position in the world with respect to key parameters as given below
2. HISTORY

1945 to 1960

War surplus tractors and bulldozers were imported for land reclamation and cultivation in
mid 1940's. In 1947 central and state tractor organizations were set up to develop and
promote the supply and use of tractors in agriculture and up to 1960, the demand was met
entirely through imports. There were 8,500 tractors in use in 1951, 20,000 in 1955 and
37,000 by 1960.

1961 to 1970

Local production began in 1961 with five manufacturers producing a total of 880 units per
year. By 1965 this had increased to over 5000 units per year and the total in use had risen to
over 52,000. By 1970 annual production had exceeded 20,000 units with over 146,000 units
working in the country.

1971 to 1980

Six new manufacturers were established during this period although three companies
(Kirloskar Tractors, Harsha Tractors and Pittie Tractors) did not survive. Escorts Ltd. began
local manufacture of Ford tractors in 1971 in collaboration with Ford, UK and total
production climbed steadily to 33,000 in 1975 reaching 71,000 by 1980. Credit facilities for
farmers continued to improve and the tractor market expanded rapidly with the total in use
passing the half million mark by 1980.

1981 to 1990

A further five manufacturers began production during this period but only one of these
survived in the increasingly competitive market place. Annual production exceeded 75,000
units by 1985 and reached 140,000 in 1990 when the total in use was about 1.2 million.
Then India - a net importer up to the mid-seventies - became an exporter in the 1980s
mainly to countries in Africa.
1991 to 1997

Since 1992, it has not been necessary to obtain an industrial license for tractor manufacture
in India. By 1997 annual production exceeded 255,000 units and the national tractor
population had passed the two million mark. India now emerged as one of the world leaders
in wheeled tractor production.

1997 to 1999

Five new manufacturers have started production since 1997. In 1998 Bajaj Tempo, already
well established in the motor industry, began tractor production in Pune. In April of the
same year New Holland Tractor (India) Ltd launched production of 70 hp tractors with
matching equipment. The company is making a $US 75 million initial investment in a state of
the art plant at Greater Noida in Uttar Pradesh state with an initial capacity of 35000 units
per year. Larsen and Toubro have established a joint venture with John Deere, USA for the
manufacture of 35-65 hp tractors at a plant in Pune, Maharashtra and Greeves Ltd will
produce Same tractors under similar arrangements with Same Deutz-Fahr of Italy. Looking
to South American export markets Mahindra and Mahindra are also developing a joint
venture with Case for tractors in the 60-200 hp range. Total annual production was forecast
to reach 300,000 during the following year.

1999 to Present

Facing market saturation in the traditional markets of the north west (Punjab, Haryana,
eastern Uttar Pradesh) tractors sales began a slow and slight decline. By 2002 sales went
below 200,000. Manufacturers scrambled to push into eastern and southern India markets
in an attempt to reverse the decline, and began exploring the potential for overseas
markets. Sales remained in a slump, and added to the market saturation problems also
came increased problems of "prestige" loan defaults, where farmers who were not
financially able took tractors in moves to increase their family’s prestige. There are also
reported increased misuses of these loans for buying either lifestyle goods, or for social
functions. Government and private banks have both tightened their lending for this sector
adding to the industry and farmers woes. By 2004 a slight uptick in sales once again due to
stronger and national and to some extent international markets. But by 2006 sales once
again were down to 216,000 and now in 2007-08 have slid further to just over 200,000.
FOREIGN COLLABORATION

Tractor industry along with others benefited from this policy which allowed free
inflow of foreign technology .The manufacture of tractors started in India mainly
with the help of foreign collaboration secured from internationally reputed
companies from the USA, UK, USSR, WESTGERMANY, POLAND ,CZECH SLOVAKIA .
Most of the models which were taken up for manufacture in India were developed
overseas. Soon after the decision for the manufacture of tractors was made during
second plan, government approved number of foreign collaboration agreements.

The establishment and present status of tractor industry owes a great deal to the
support received by the Indian entrepreneurs from foreign collaboration during the
initial phase of manufacture

Manufacturer Collaborator Year


Eicher Tractors Ltd Gebr,Eicher Tractor,West Germany 1961
Gujrat Tractors Ltd Motokov-Praha,Czechoslovakia 1963
TAFE Messey ferguson,UK 1961
Moloimport Arazawa Zaklady Mechaniczne,
Escorts Ltd 1964
Ursus Poland
Mahindra & Mahindra International harvestor,UK 1965
Escorts Tractors ltd Ford UK 1971
Hindustan Machine
Motokov-Praha,Czechoslovakia 1971
Tools
Kirloskar Tractors ltd Klochner-Humboldt Deutz.Germany 1974
PanjabTractors ltd CEMRI.INDIA 1974
Pittle Tractor Ltd Own Know how 1974
Harsha Tractors ltd Moto Import,Rassia 1975
Auto tractor Ltd British Leyland,UK 1981
Pratap Steel Rolling
Own Know how 1983
Mill
VST Tillers Mitsubishi,Japan 1983
United Auto tractor Ltd Jznina tractorul,Romania 1986
Asian tractor Ltd Own Know how 1989
Bajaj Tempo ltd Own Know how 1987
International Tractors Own Know how 1998
Larson & Tubro Ltd John Deere US 1999
New Halland Tractors New Halland Tractors,Italy 1999
Greaves Ltd Same Deutz Fhar, italy 1999
3. INDIAN TRACTOR MARKET OVERVIEW

The tractor penetration level in India is very low as compared to the world standards. Also
the penetration levels are also not uniform throughout the country. While the northern
region is now almost saturated in terms of new tractor sales, the southern region is still
under penetrated. The medium horse power category tractors, 31-40 HP are the most
popular in the country and fastest growing segment.

There are currently 14 players in the industry. Mahindra & Mahindra is the leading player in
the industry. Monsoon season is a key driver for sales of tractors. A series of good or bad
monsoon can affect the sales. In recent years the industry has registered a good growth in
sales, both domestic as well as exports. This is also partly because of the initiative of the
government to boost up agriculture and agricultural machinery industry. Tractor industry
has made a steady and satisfactory progress even in drought areas.

Description Units World total/Avg India India Rank


Available land Mn Hector 1444 170 2
Irrigated area Mn Hector 249.6 45.8 2
Tractors in use Tractors/1000 28 10.5 8
Hectors
(Source: http://www.scribd.com/doc/36537001/Tractor-Industry-in-India)

The tractor industry


reported a strong 28.3%
growth in sales volumes
during 2009-10, thereby
ending the phase of
cyclical correction that
had pulled down tractor
sales during the
preceding two years
(2007-09). Significantly,
the revival of 2009-10
happened despite the
drought-like conditions
in many States during
the kharif season
dampening sentiments.

The key factor enabling the demand growth of 2009-10 was strong rural liquidity, which in
turn was sustained by several factors, including: higher minimum support price (MSP) for
crops; greater ability of farmers to make cash purchases (including the usage of Kisan Credit
Card which are increasingly being used to part-finance tractor purchases); enhanced
employment opportunities (with rural employment schemes being implemented by the
Government of India); an improved credit environment; and continuance of replacement
demand.
These factors apart, non-agricultural use of tractors (for haulage in construction and
infrastructure projects) continued to increase, benefiting tractor demand. Also, with
infrastructure projects and rural employment schemes increasing employment
opportunities, availability of labour for agricultural activities continued to decline,
persuading even farmers with medium-sized land holdings to either rent or purchase
tractors.

On a regional basis, the performance of the eastern, northern and western parts of the
country was robust during 2009-10 in terms of tractor demand, while that of the southern
region was moderate. A strong growth in tractor volumes, albeit on a low base, was
witnessed in the eastern States, including Bihar, Orissa and Jharkhand, which had a good
paddy crop. Tractor volumes in the northern and western regions also reported strong
growth during 2009-10, especially in the second half (H2) of the year, benefiting from a low
base (H2, 2008-09) and a satisfactory kharif crop in some States. The southern region
reported moderate performance in terms of tractor demand (growth of 11.9% in 2009-10),
being impacted largely by the de-growth in Andhra Pradesh (AP)—a key southern market—
where rainfall was irregular in 2009-10. However, in Karnataka and Tamil Nadu, higher MSPs
for rice along with some revival of interest of public sector banks (PSBs) in tractor financing
led to strong tractor sales volumes.

Historically, tractor demand has been fairly volatile, being influenced by cyclical trends,
availability of finance, and crop patterns (monsoon). After four years of strong growth
during 2003-07, the fiscal years 2007-08 and 2008-09 both reported a marginal decline in
tractor sales volumes, largely reflecting cyclical corrections. In addition to the cyclical dips,
during H2, 2008-09, the industry also had to cope with the liquidity crunch, which pushed up
interest rates, even as financiers resorted to more stringent lending norms in the face of
rising non-performing assets (NPAs). However, the situation improved during 2009-10 as
credit availability improved on the strength of greater liquidity in the banking system. While
tractor financing has traditionally been done by PSBs, of late, private banks and non-banking
finance companies (NBFCs), despite their higher interest rates vis-à-vis the PSBs, have been
able to increase their penetration of this market on the strength of faster loan processing
and use of more liberal credit norms.

Overall, with tractor demand being closely linked to agricultural output, growth in farm
mechanisation and farmers’ remuneration, the long-term demand drivers for the industry
remain robust. The currently low levels of tractor penetration in India, strong Governmental
focus on availability of finance for agriculture mechanization tools and on rural
development, increase in the use of tractors for non-agricultural purposes, and the growing
emphasis on tractor exports augur well for the industry.
The tractor industry reported a compounded annual growth rate (CAGR) of over 20% in
volume terms during the period 2003-07. The long up-cycle in demand was supported by
several factors, including excise duty exemptions on tractors (2004-05), thrust on rural
development, improved availability of finances for tractor purchase, and low interest rates.

The growth also came on a low base, with the preceding three fiscal years (2000-03) having
witnessed a prolonged phase of volume correction. The cyclical correction during 2000-03
had been aggravated by the build-up of channel inventory with the major players having
pushed aggressively for larger sales. In contrast to this phase of cyclical slowdown, the one
that happened during 2007-09 was less severe, with volumes declining by around 3%,
despite the intermittent tightening of the liquidity situation during H2, 2008-09.

The demand slowdown during H2, 2008-09 also impacted the profitability of the original
equipment manufacturers (OEMs), that is, the tractor manufacturers, because of the high
price inventory they were carrying. However, the situation improved on the cost structure
front in H1 2009-10 with the softening of commodity prices preparing the ground for the
industry to earn higher profitability margins. The pickup in volumes also lowered the
overhead expenses for the tractor manufacturers, boosting their profitability. While the
OEMs did not lower the listed sales price of tractors, the benefit of lower steel prices was
passed on to the end customers via discounts. This is an accepted practice in the industry;
given that once prices are lowered it is difficult to raise them subsequently. However, during
H2 2009-10, the tractor majors increased the prices with the reversal of commodity prices
and the discounts have also come down.

Capacity utilisation in the tractor industry had hit a low during 2002-03, following large
capacity additions and a volume slump. After that, capacity utilisation improved steadily,
but remained moderate at around 50% during 2008-09. In 2009-10, the tractor volume
growth has helped the OEMs improve their capacity utilizations; however, there is still
excess capacity in the industry. Thus, over the medium term, most tractor manufacturers
would not need to make any significant capital investments in building capacities.

As discussed, the domestic tractor industry has to cope with demand volatility on account of
cyclical trends and the strong linkages it has with agricultural production and monsoon
rains. Many of the industry players have thus diversified into related products, including
generator engines and cranes, besides focusing more on exports, to gain some insulation
against the volatility in domestic tractor demand. As for tractor exports, while a major part
of that currently goes to USA, the OEMs are now exploring various other markets across
Europe, Asia and Africa for future exports.
i) INDUSTRY TRENDS BY REGIONS

The biggest markets for the tractor industry include States like Uttar Pradesh (UP), Andhra
Pradesh (AP), Madhya Pradesh (MP), Rajasthan, and Maharashtra, which together
accounted for around 50% of the total tractor sales in India during 2009-10. The tractor
industry witnessed a strong y-o-y growth of 28.3% during 2009-10, with most of the States
reporting positive growth during the year.

Trend in Tractor Sales across regions

The northern region remains the largest tractor market in India with sales of around
1,67,000 units as of 2009-10. This region reported a growth rate of 35.7% in volume sales in
2009-10 over the previous fiscal, with the key contributors including UP, Punjab, Haryana
and Rajasthan. The northern region benefited from higher MSPs (for crops), limited
availability of labour (forcing higher mechanisation), and increasing non-agricultural use of
tractors.
Additionally, increased infrastructure development activities (especially highways) led to
appreciation in land values and use of tractors for non-agricultural purposes. In some cases,
farmers also received compensation for the Government’s acquisition of select land patches
(adjoining highways), which increased the availability of cash with them. Feedback from
industry players suggests cash purchases (including purchases using Kisan Credit Card) in
some northern States increased to 35-40% of the total tractor volumes in 2009-10 from 10-
15% in the past.

Trend in Tractor sales across States

Tractor volumes in UP grew by 42.7% during 2009-10, with H2, 2009-10 reporting
particularly strong growth (around 51% y-o-y) mainly on the back of high sugarcane prices
for the kharif crop and improved irrigation facilities. In the case of Punjab, tractor volumes
remained strong for the fifth straight year in 2009-10 (y-o-y growth of 42%). In Rajasthan
however, growth in tractor volumes was relatively subdued in 2009-10 (around 24% y-o-y)
as compared with the figure for the northern region as a whole. Tractor sales in Rajasthan
were especially low in H2, 2009-10 versus H1, 2009-10, due to lower kharif output on
account of deficient rains and inadequate financing availability.
In the eastern region, tractor volumes continued to report strong growth in 2009-10, albeit
on a small base, and went up by 53.8% over 2008-09, being driven mainly by the higher
MSPs announced for paddy. Within the region however, many financiers remained reluctant
to finance tractor purchases in some States like Bihar. Nevertheless, in Bihar, tractor
volumes grew 66% over 2008-09 to around 29,000 units in 2009-10, thereby accounting for
over 50% of the total sales in the eastern region. The Bihar market, where tractor
penetration had been low historically, has shown sustained growth over the last few years
and become one of the important markets for the tractor industry. Overall, in the eastern
region, growth in tractor volumes is expected to moderate, going forward, as the benefit of
a low base get diluted gradually.

The western region reported sales of around 92,000 tractor units during 2009-10—a growth
rate of 35.7% over the previous fiscal—benefiting particularly from the strong performance
that Maharashtra, Gujarat and MP posted during H2, 2009-10 (55% y-o-y growth over H2,
2008-09). The factors contributing to the strong growth in the region during H2, 2009-10
included a benign base effect, higher crop prices (of sugarcane and cotton in Maharashtra,
and of cereals and soyabean in MP), and greater availability of retail finance.

The performance of the southern region in terms of tractor sales was relatively modest
during 2009-10, with the growth rate being around 11.9% over the previous fiscal. While
most States in the region reported healthy growth, AP, which is the largest tractor market in
the south, de-grew by 10.4% in 2009-10.

ii) INDUSTRY TRENDS BY STATE

Punjab, Uttar Pradesh and Haryana were the first States to benefit from the Green
Revolution and hence have traditionally accounted for most of the tractor sales. However,
given the high penetration of tractors in these Northern States, the geographical
concentration of tractor sales is gradually shifting to the Western and Southern States of the
country. States like Gujarat, Andhra Pradesh and Madhya Pradesh have reported significant
increases in tractor volumes over the past three years. This trend is continuing in the current
fiscal also, as the intensity of tractorisation in North India is quite high already. Table 5
depicts the distribution of tractor sales in the country in the first quarter of the current fiscal
vis-a-vis the like period previous year.
The biggest markets for the tractor industry include States like Uttar Pradesh (UP), Andhra
Pradesh (AP), Madhya Pradesh (MP), Rajasthan, and Maharashtra, which together
accounted for around 50% of the total tractor sales in India during 2009-10. The tractor
industry witnessed a strong growth of 28.3% during 2009-10, with most of the states
reporting positive growth during the year.

The performance of the southern region in terms of tractor sales was relatively modest
during 2009-10 with the growth rate being around 11.9% over the previous fiscal. While
most States in the region reported healthy growth, AP, which is the largest tractor market in
the south, de-grew by 10.4% in 2009-10.

The market shares of the top four players in the Indian tractor industry did not change much
during 2009-10 in comparison with 2008-09. M&M remained the market leader with around
41.1% market share, followed by TAFE with a market share of around 22%, Escorts with
around 12.1% and International Tractors (ITL) with around 8.9%.

Trend in State wise market share


The Indian tractor industry has around 13 national players and a few regional players. The
industry is dominated by Mahindra and Mahindra (M&M) with a market share of around
41.1%, followed by Tractors and Farm Equipments TAFE, which holds around 22% of the
market. The other major players include Escorts (12.1%), L&T-John Deere (7.8%), and
International Tractors Limited (8.9%). During the last few years, the industry has seen some
consolidation with M&M acquiring Punjab Tractors (PTL) and TAFE acquiring Eicher Tractors.
Most of the tractors sold in India are in the 21-50 HP range, with the 31-40 HP category
alone accounting for around 50% of this.

The tractor industry reported a strong 28.3% growth in sales volumes during 2009-10,
thereby ending the phase of cyclical correction that had pulled down tractor sales during the
preceding two years (2007-09). Significantly, the revival of 2009-10 happened despite the
drought-like conditions in many States during the kharif season. The key factors enabling
the demand growth of 2009-10 were,

1. Strong rural liquidity


2. Higher Minimum Support Price (MSP) for crops
3. Greater ability of farmers to make cash purchases
4. Enhanced employment opportunities
5. Improved Credit environment
6. Continuance of replacement demand
7. Non-agricultural use of tractors
8. Change in product mix
9. Distribution network
iii) REGION-WISE MARKET SHARE OF MAJOR PLAYERS

The market shares of the top four players in the Indian tractor industry did not change much
during 2009-10 in comparison with 2008-09. M&M remained the market leader with around
41.1% market share, followed by TAFE with a market share of around 22%, Escorts with
around 12.1%, and International Tractors (ITL) with around 8.9%.

M&M remains particularly strong in the southern region (50.4% market share during 2009-
10). However, L&T John Deere (LT-JD) was able to increase its market share in the region by
around 250 bps in 2009-10, mainly at the expense of M&M (market share down by 140 bps)
and Escorts (down by 140 bps). In the western region too, LT-JD performed well in 2009-10,
increasing its market share by 190 bps, even as TAFE lost market share by around 90 bps
there.

In the northern region, where M&M has been traditionally weak, the company increased its
market share by 140 bps during 2009-10, even as ITL and Escorts lost market shares by
around 90 bps and 60 bps respectively, there. In the eastern region, M&M was able to raise
its market share by around 140 bps in 2009-10 at the expense of Escorts and TAFE.
iv) INDUSTRY TRENDS BY TRACTOR HORSE POWER (HP)

Tractors can be classified into four different categories. The sales of tractors with engine
power below 20 HP have been very small in the past, and their share of the total sales is
currently insignificant. The following table presents the shares of the different tractor
segments in the total sales. The four segments in the Indian tractor market are discussed
here.

21-30 HP: The share of this segment in total tractor sales declined from 34% in 1989-90 to
23% in 2003-04. These tractors are suitable for the soft soil conditions in the Northern
States like Punjab, Haryana and Uttar Pradesh. However, with the penetration rates in these
States increasing, the demand for tractors in this segment has declined. These tractors are
used primarily for agricultural applications.

31-40 HP: This segment accounted for 49% of all tractors sold in 1989-90 and for 50% in
2003-04. The soil in the Western and Southern regions of the country is relatively hard and
hence farmers here prefer using tractors of 31-40 HP. This segment dominates the Indian
tractor market and has grown at the expense of the small HP segment (21-30 HP). The
reasons for this are the low price differential between the small and medium segment
tractors.

41-50 HP: This segment’s share increased from 15% in 1989-90 to 21% in 2003-04. With the
increasing shift towards modern farming methods, sales of tractors in this segment may
witness an increasing pace of growth in the coming years. Farmers with large land holdings
prefer these tractors.

Above 50 HP: This segment’s share increased slowly but steadily from 2% in 1989-90 to 7%
in 2003-04. Above 50 HP tractors are not only used for agricultural applications, but also
serve as a mode for haulage and transportation. The >51 HP segment of the Indian tractor
market also underperformed the industry growth rate in 2009-10 mainly because of the
decrease in the exports which is a key demand area for these high HP tractors.

Over the past 10 years, there has been a perceptible shift away from the 21-30 HP segment
towards the higher segments. The larger tractors can prove more economical for bigger land
holdings. In the case of a 35-40 HP tractor, the hourly diesel consumption is around 3.5
litres. The same goes up to 4.5 1itres for a 50 HP tractor and to 7.5-8 litres for a 70 HP
tractor. But in an hour, the 35-40 HP tractor can cover only 2.5-3 acres, compared with 5
acres for the 50 HP and 9-10 acres for the 70 HP tractor. So, higher the HP, better the overall
fuel efficiency. However, the high cost of the larger tractors and the low average size of land
holdings in India constrain the utility of the larger tractors.
The Indian tractor market has traditionally been a medium HP market, with 31-40 HP
tractors accounting for around 47% of the total industry volumes. In 2008-09, the 31-40 HP
category had reported sales of 157,602 tractor units, which was about the same as the
previous year’s figure but lower than the 2006-07 statistic by 7%. In 2009-10 however, this
category reported a strong revival, with the volume growing by 22%2 over 2008-09; the
revival was led by UP, Karnataka and Madhya Pradesh.

The other major segment in the Indian tractor market is the 41-50 HP range, which accounts
for around 23% of the total industry volumes. This segment grew by around 10% during
2009-10, thereby underperforming the growth in overall tractor volumes (around 19%) that
year. The main reason for this underperformance was the low growth that the southern
region, the biggest market for this segment, reported in 2009-10.
4. MARKET CONCENTRATION

Market concentration in tractors industry is fairly high with top two players, M&M M&
(including Punjab Tractors) and TAFE accounting for 63 per cent of the market in 2007-08.
2007
Market concentration increased over the past 4 years due to the acquisition of Eicher
tractors by TAFE in 2005-06
06 and PTL’s acquisition by M&M in 2006-07.
2006

i) MARKET CAPITALISATION IN TERMS OF VOLUME


Market share of the major player
VS Escort Force Force
PTL VS Tiller Escorts Force Tiller s 3%
PTL VS Tiller Escorts
2%
9% 0% 5% 3% PTL 6% 0% 4%
7% 0% 3% HMT
HMT
16% 14%
HMT
24%
M&M M&
59% M M&M
71% 74%

2005 2006 2007


VS Escorts VS Escorts Force VS Escorts Force
PTL Tiller Tiller 3% 1% Tiller 4% 1%
3% Force PTL
6% 0% 1% 4% 1% 1% HMT
HMT
14%
16%
HMT
22%
M&M M&M
68% M&M 80%
75%

2008 2009 2010

As it seen from the above graph of market capitalisation, Mahindra and Mahindra has
become the giant in tractor industry over the last few years and has captured the market
upto 80% of the total segmental industry.
ii) MARKET CAPITALISATION IN TERMS OF TURN OVER

MARKET CAPITALISATION
35000
Escorts Force HMT
30000 M&M PTL VS Tiller
25000
Rs in Crores

20000
15000
10000
5000
0
2005 2006 2007 2008 2009 2010
Year

In the long run, Mahindra & Mahindra is expected to remain the leader in the tractor
industry due to well diversified product mix, strong pan India presence, cost-efficient
cost
operations and rising global sales. Now, post-acquisition
post acquisition of Punjab Tractors, its leadership
has become stronger.
er. In total, it commands a 38 per cent market share.

iii) MARKET CAPITALISATION IN TERMS OF SALES

Sales Value
5000 2005 2006 2007
2008 2009
Sales in Rs. Crore

4000
3000
2000
1000
0
Escorts ITL John Deer M&M TAFE

Company
Sales In Quantity
140000
120000 2005 2006
2007 2008
100000 2009
80000
60000
40000
20000
0
Escorts ITL John Deer M&M TAFE

The key success factors for the players will continue to include diversified product portfolio,
nation-wide distribution strength and cost competencies. The relative ranking of players
based on market share will remain stable with increasing polarisation of market position
between stronger and marginal players.

After the acquisition of Eicher Motor’s tractor division, TAFE has emerged a strong number
two in the industry with better product portfolio and distribution network (although
overlapping may cause some loss of share). TAFE’s share went up to 28 per cent after its
acquisition of Eicher

Escorts and International Tractors, with a market share of 14 per cent and 10 per cent,
respectively, are expected to remain strong competitors in the medium-to-long term.
International Tractors is expected to maintain its share as it would not be able to grow at
higher than industry growth rate.
Global players like John Deere and New Holland India are likely to provide strong
competition to the other well established players in the coming years as they strengthen
their Indian product portfolio and distribution network and remain major exporters.

Smaller players like Force Motors, VST Tillers and HMT are likely to be marginalized further
in the long run due to lack of diversified product portfolio, poor nation-wide distribution
network and weakness in cost structure.
5. TRACTOR INDUSTRY IN TERMS OF FINANCIALS

i) P/E RATIO

The P/E ratio is the ratio of market value of share to the Earning per Share (EPS) The graph
below indicates the performance of major players in tractor industries in India via P/E ratio.
In 2009, due to recession, the market value of share has reduced drastically from Rs. 342 to
Rs. 131.00. It indicates that the return on investment is higher as compared to the previous
year with respect to market value of the share.

P/E RATIO
700.00
600.00
500.00 VS Tiller PTL M&M

400.00 HMT Force Escorts

300.00
200.00
P/E

100.00
0.00
-100.00 2005 2006 2007 2008 2009 2010

-200.00
-300.00
-400.00
YEAR

ii) EARNINGS PER SHARE

This is an important financial indicator for investors in the market. It is directly proportional
to the profitability of the company. The graph below shows EPS of major players in tractor
Industry in India. It is observed that there is an increase in trend in EPS value except for year
2009-10. (this is because of economic slowdown)
EARINGS PER SHARE
150.00
Escorts Force
HMT M&M
100.00 PTL VS Tiller

50.00
RS.

0.00
2005 2006 2007 2008 2009 2010

-50.00

-100.00
YEAR

iii) PAT (PROFIT AFTER TAX)

In accounting, profit is the difference between price and the costs of bringing to market
whatever it is that is accounted as an enterprise (whether by harvest, extraction,
manufacture, or purchase) in terms of the component costs of delivered goods and/or
services and any operating or other expenses.

2200
PAT
Escorts Force HMT ITL
1700
John Deer M &M TAFE VST Tillers
Rs Crores

1200

700

200

-300 2005 2006 2007 2008 2009 2010


YEAR
The net income generated by company is very important because the sales income and the
income from investments represent the net income. The net profit of the company is the
PAT. From the Graph-I below it is seen that M & M has stead y increase in its income which
is a good sign. PAT is also good performance indicator which directly correlates to the
Earnings per Share (EPS).

Being the market leader in tractor industry sector, Mahindra and Mahindra has maintained
the growth over the period of times. Thus M & M is the major player in tractor industry in
India and also the major profit earner.
6. EXPORTS

Indian tractor manufacturers have been increasingly targeting the international markets
over the last few years. The industry exported a total of around 37,900 tractors during 2009-
10, with the USA, Africa, South America, and some Asian countries being the top
destinations. The industry leader, Mahindra and Mahindra (M&M), has acquired Yancheng
Tractors, the fourth largest tractor manufacturer in China (in terms of FY2008 volumes), to
improve its presence in the country. In the developed markets, Indian tractors have a
relatively marginal presence, with sales being largely restricted to the hobby farming
segment.

Tractor exports from India grew at a CAGR of 36 % from 2005-06 to 2009-10. Around 60 %
(in 2005-06) of these exports were to the US mainly driven by an increase in hobby farming
in the country. Exports to other countries such as South Asian countries, Malaysia, Turkey
and Africa are estimated to have been growing fast as well. In year 2006-07, over 50 % of
exports were to non US destinations.
7. SOME LONG TERM DEMAND DRIVERS FOR THE INDUSTRY

Low penetration of tractors in Indian agriculture: Indian agriculture is characterised by low


farm mechanisation, fragmented land holdings, and high dependence on monsoon rains (in
the absence of adequate irrigation facilities). Tractor penetration in India is low at around 13
tractors per 1,000 hectares as against the global average of 19 and the US average of 29.
While this does indicate the relative backwardness of Indian agriculture, it also points to the
significant scope that exists for raising tractor penetration, which bodes well for tractor
demand over the long term.

Government support for the agricultural sector: Although agriculture contributes just
around 20% to India’s GDP, it provides employment to a large rural population, which is why
the sector remains a strong focus area for the Government. The tractor industry benefits
significantly from the Governmental focus on agriculture, with measures such as nil excise
duty on tractors (even the excise duty on tractor parts has been lowered from 16% to 8%)
and inclusion of tractor financing under priority sector lending (by PSBs) serving as long-
term demand drivers. Financing of tractor purchase is of great significance for the industry,
it being a key demand facilitator.

Export of tractors: Indian tractor manufacturers have been increasingly targeting the
international markets over the last few years. The industry exported a total of around
37,900 tractors during 2009-10, with the USA, Africa, South America, and some Asian
countries being the top destinations. The industry leader, Mahindra and Mahindra (M&M),
has acquired Yancheng Tractors, the fourth largest tractor manufacturer in China (in terms
of FY2008 volumes), to improve its presence in the country. In the developed markets,
Indian tractors have a relatively marginal presence, with sales being largely restricted to the
hobby farming segment.
8. FUTURE GROWTH IN TRACTOR INDUSTRY

Tractor sales are expected to remain healthy in fiscal 2010-11, given the good rabi crop this
time around, the continuing firmness in the prices of agricultural products, and the healthy
monsoons anticipated during the coming kharif season. Moreover, improving farm
mechanisation levels (with labour availability in rural areas declining), increasing non-
agricultural use of tractors, higher credit disbursements for agriculture, and sharper
Governmental focus on the farm sector (larger budgetary allocations) are also expected to
encourage tractor sales. The industry’s profitability is however expected to remain
moderate in the medium term, considering the high competitive intensity and low capacity
utilisation levels, although larger players could benefit from scale economics. As for margins,
while they have seen an improvement in 2009-10, they would remain vulnerable to adverse
changes in commodity prices.

While some States in the northern region have achieved high levels of tractor penetration
and farm mechanisation, on an all-India basis, the penetration remains low, which along
with the current shortage of farm labour and consequently rising labour costs, may be
expected to lead to greater mechanisation and use of tractors. The long-term prospects for
the Indian tractor industry hinge on agricultural growth and Government support in areas
such as financing availability, tax exemptions, and fiscal stimulus for rural development.
Overall, ICRA expects the long-term growth rate for the Indian tractor industry to trend
around the historical average of 6-8%, supported by increasing tractor penetration.
9. REFERENCES

1. http://www.scribd.com/doc/30045927/Opinion

2. CMIE Database

3. www.bseindia.com

4. www.scribd.com

5. www.icfa.com

6. www.moneycontrol.com

7. www.thehindu.com

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