As the underlying demand drivers for the tractor industry are expected to remain intact, ICRA expects a 1-4% Y-o-Y growth in domestic tractor volumes in FY22, amid an evolving COVID-19 situation.
The rating agency also pointed out that the expectations of healthy rabi cash flows, government support programmes, healthy financing availability and a normal monsoon forecast will further aid farm sentiments.
Moreover, strong agri-demand, haulage demand has improved significantly over the past few months, led by the government’s continued push on developing rural infrastructure; the same is likely to support industry volumes.
Rohan Kanwar Gupta, Vice President, ICRA, said, “Rural sentiment, which had been a beacon of hope in the first wave of the pandemic, was expected to continue to remain buoyant. However, with the sudden and severe onset of the second wave of the pandemic, the growth momentum of the industry has been impeded to an extent.”
In addition to state lockdowns impacting dealership operations across regions, rural sentiments have also been affected by the spread of infections into the hinterlands in the current wave.
However, unlike other automotive segments, there were no major production shutdowns taken by OEMs for tractors. “With lockdowns being relaxed across most regions in June, the industry’s wholesale and retail volumes are expected to witness a marked improvement from this month onwards,” Gupta added.
ICRA had earlier projected 4-6% growth in volumes for FY22; given the impact of the second wave, the same has been revised downwards to 1-4%.
Downside risks to these estimates emanate from spells of unfavourable rainfall leading to crop damage and a resurgence in COVID cases. Given the high base of the previous fiscal, even stagnant volumes in the current fiscal would still represent robust volumes for the industry participants.
“The credit outlook on the tractor industry remains ‘stable’. Despite expectations of some margin pressure, the operating margins for most OEMs in the industry are expected to remain at healthy levels, with return indicators being robust.” Gupta added.