VANRAJ MINI-TRACTORS

GROUP- 06
Group Members:
Amal.S.Pilla PGP/16/303
Nikita Gupta PGP/16/328
Pranav Mehta PGP/16/331
Rohit Koolwal PGP/16/333
Shwethank Dixit PGP/16/346

Q1. Why would a farmer buy a mini-tractor rather than a big tractor?
Ans. Some of the major factors influencing a farmer while purchasing a tractor are:

Horsepower
Price
Fuel efficiency
Availability of spares
Easy maintenance
Compatibility with various farming implementations

When it comes to price, mini tractors had a distinct advantage over the big tractors. Mini tractors
have the same lifespan as a big tractor (8 9 years), but cost only less than 0.2 million, while a
35HP tractor costs 0.25 million and 50HP tractor costs 0.35 million. So mini-tractors are only
half as costly as a big tractor.
Also, tractors of less than 30HP received a government subsidy of Rs.30000 per tractor under the
program to modernize agriculture.
A large tractor uses almost 4ltrs of diesel per hour, on an average, while a small tractor would
less than 2 ltrs only. So at the rate of usage of 1000 hour per year, we can calculate a profit of
2000 ltrs of diesel per year, which would come to Rs 80000 per year at the rate of 40rs/ltr of
diesel.
With its smaller wheelbase and turning radius, mini-tractors are more maneuverable and can
reach small corners of land inaccessible to big tractors.
The ease in availing tractor finance was a major factor for the spurt in tractor sales. So we can
understand that most of the farmers using tractors have loan payments. We know that large
tractors require much more hours of usage per year than a mini tractor, to achieve break-even.
With the current scenario in the nation being that of gross under utilization of tractors, mini
tractors are a much more attractive option than a big tractor.

Q2 Is Vanraj a viable product?

Ans2. M/s Pramal Farmatics (P) Ltd started with a paid up capital = 12.5 lacs.
Upfront Transfer fees =Rs. 3 lacs
Initial Fixed Cost = Rs. 15.5 lacs
Net Sales realization for first five years = 570+627+684+741+798 = Rs. 3420 lacs
As total of 1800 tractors have been produced in five years hence royalty has to be calculated as
follows:
Royalty to be paid for five years @ rate of 2.25% of sales = 76.95 lacs
Therefore, Total cost incurred in five years = Fixed Cost + Royalty= Rs. 92.45 lacs
Net Cash accrual in five years = 7.12+7.98+8.52+8.85+9.72= Rs 42.19 lacs
Net deficit after five years = Rs. 50.26 lacs
Royalty for the first year cannot be paid with the cash accrued in the first year and hence the
interest on the leftover amount will be accumulated along with the deficit amount in the coming
years which has not been considered in the above calculation. This will further increase the total
cost incurred.
Hence the company is not in the condition to pay the royalty with the available cash/sources.
Even after seven years the additional cash accrual is Rs. 9.35+9.54 lacs= Rs. 18.89 lacs which is
not sufficient to cover the cash deficit.
Hence the company will not be able to break even in the seven years down the line if the
company sells at the given price of Rs. 1.9 lacs/tractor and the production.
Farmers perspective comparison of the bullocks and Vanraj tractor
Cost of Vanraj Tractor
Cost of Tractor (life of 8-9 year)= Rs. 1.6/8.5 = Rs. 18823
Fuel Cost = 950 hr*1.5 l/hr *40 Rs/l = Rs. 57000
Maintenance Cost =Rs. 12.5% of 1.9 lacs/8.5 = Rs. 2794
Total Annual Cost = Rs. 78617

Cost of Bullocks

Cost of a pair of Bullock (Life of 9 years) = Rs. 27500/9 = Rs. 3055

Fodder Cost = Rs. 17500
Total Annual Cost = Rs. 20,555
Hence the tractor is not viable from the farmers perspective also if we compare it with Bullock.

Q3. Which market segment would you target. Why?

The tractor market can be segmented as following:

Less than 20 HP tractors mini-tractors

21-30 HP tractors small tractors
31-40 HP tractors medium-sized tractors
41-50 HP tractors large tractors
Greater than 50 HP tractors high-end tractors

Vanraj falls under the mini tractor category with a 10HP engine.
The geographical market segments are:

North India : The soil in Punjab, Uttar Pradesh and Haryana is alluvial soil
West and South India: The soil in Gujarat, Maharashtra, MP and other south Indian states
is black soil and laterite soil.

The alluvial soil requires tractors with lower horse power for tilling and other farming activities
and the black soil requires higher horsepower tractors. But however, the farm mechanization in
northern sectors has been faster. So, market penetration will be difficult. Although the tractor
densities were projected to grow in the south Indian states, this could not be Vanrajs target
segment as it is only a mini-tractor which cannot cater to the south Indian demand.
Based on the type of farmers, the market is demographically segmented as:

Small and marginal farmers

Large farmers
Industries
Horticulture farmers

Small and marginal farmers cater to 82% of the agricultural land holdings. Most of these farmers
used only bullock carts and human labour for tilling and other agricultural operations. As shown
earlier that targeting the small and marginal farmers market segment is not a viable option.

Large farmers will require tractors with a larger horsepower. Also there is a lot of competition in
this segment with all the major players competing for a good market share. Most of the market
has been tapped also.
The horticulture market is a niche market where there have been huge improvements in the land
holdings. Area under horticulture farming was increasing, especially in Maharashtra and Gujarat
(almost by 100%). Although, Vanraj has the three-wheel convertible feature which is useful in
the horticulture market, since horticulture farmers have large landholdings, they form a market
niche within the market segment of large farmers. So, the prospect of potential competition with
large players in the tractor industry makes this market segment a risky one to target.
With some minor modifications, Vanraj can cater to the material handling applications in
industries, warehouses, construction work and airports. It can also be used in the narrow streets
of cities and towns for waste collection and disposal services by the municipal corporations
because of its maneuverability (smaller wheel base and turning radius). Vanraj also provides a
feature of PTO point. Due to insufficient data, on the alternative market segments, we cannot
conclude on which market segment to target. However, based on the above analysis, industries
seems to be the most viable target segment they can target. With increasing their selling price to
0.20 million/tractor they can get their breakeven point earlier and start making profit in the 3rd
year only.