Deployment of tractors has been a major thrust in the processes of mechanisation and modernisation of farming in India. The industry has come a long way since the inception of the early units in the late 1960s. Today, India produces over 350,000 tractors annually and the total tractor population over the years has grown to over 3.5 mn. There are 14 units producing tractors in India. The investment in the segment is estimated at Rs 60 bn.
The industry marched forward slowly but steadily during the eventful 1990s, marked as it was by a complete paradigm shift from a closed to a globalised sector. The production moved up from 117,700 units in 1989-90 to over 257,000 units in 1999-00, representing a CAGR of over 8% in the decade of the 1990s. The early years of the new millennium witnessed a sagging trend. The production progressively dropped to a level of 162,000 in 2002-03, an annual decline of 14.2% between 1999-00 and 2002-03 while the automobile sector, especially the four-wheeler segment, had also gone under a heavy recessionary pressure for sometime. Total sales of tractors in 2000-01 at 230,000 vehicles reflected a decline of nearly 20,000 units, registering a negative growth of around 9% over the previous year. A further slide down saw the sales dip to a low of 171,600 units in 2002-03. In the following year, however, there was a good recovery with sales in 2003-04 at 190,350 units, nearly 11% higher than those in 2002-03. Almost all major players except HMT witnessed positive growth.
Escorts’ sales increased by 21.6% to 25,550 tractors from 21,000 units; sales of Tractors & Farm Equipment Ltd (TAFE) showed a modest gain of 1.75% to about 24,900 tractors, while Eicher sales expanded by over 6% to 16,775 tractors. Sonalika recorded a 21.6% growth in sales to 20,020 tractors during 2003-04 from 16,460 units sold in the previous year. HMT’s sales, however, contracted by 18.2% to 5,560 tractors from 6,800 tractors.
From 2003-04 onwards, the industry witnessed an upward growth in production from 191,630 units to over 352,000 units in 2006-07. In the three years, the production increased at a phenomenal 22%, with a corresponding impact on sales.
The year 2007-08, however, witnessed a decline of over 2% in production matching sales decline of 1.8%. Despite the global economic meltdown, the Indian tractor industry has managed to stage a recovery, unlike other segments of the automobile industry. While the production in the first half of 2008-09 registered over 11% growth over the half of the previous year, the sales were up 6.3% during the period.
The total market of tractors was estimated at Rs 115 bn in 2007-08 which represented an increase of about 10% over that of the preceding year.
The growth could be sustained in view of the fact that the agricultural operations in India have very little linkages with the global economy. Agriculture in India fared fairly well in 2007-08.
The growth has been maximum in tractors with capacity exceeding 50 HP followed by tractors of less that 20 HP capacity mainly because of a relatively low base. Rise in sales has been fuelled by higher credit availability, rise in rural incomes and increase in irrigated area.
The potential is, however, much larger. Given the continuing – except for intermittent droughts – prosperity of the farming sector, the demand is likely to maintain a high level of growth. The present density is as low as 15 tractors per 1000 ha of cropped area against a high global average of 250.
The industry has undergone quite a few shakeouts. As indicated, there are 12 units in the organised sector manufacturing agricultural tractors. Of these, six are leading ones, namely, Mahindra & Mahindra (M&M), Eicher, Escorts, HMT, Punjab and TAFE. Bajaj Tempo and VSL (Vazir Sultan) started manufacturing, rather late, while Gujarat Tractors was acquired by M&M Foreign entrants like New Holland and John Deere (in collaboration with L&T) have also gone into production.
The tractor industry has grown on the back of imported technologies from countries as diverse as the USA, the UK, the then USSR, Germany, Poland, erstwhile Czechoslovakia and Yugoslavia, which were fully absorbed over the years. The manufacturers ventured into higher HP tractors of 75 HP and above based on imported components to meet the specific requirements.
This process of technology induction has enabled the industry to manufacture a wide range of tractors, from a low of below 20 HP to a high of 50 HP and above. The tractors in the range of 31-40 HP claim a share of about 57% in the overall production of tractors, followed by tractors in the 21-30 HP range with a share of nearly 21%. The latter is followed by tractors in the range of 41-50 HP with a share of over 14%. A significant share of 7.5% is claimed by tractors of 51 HP and above, while under-20 HP category has a negligible presence in the market.
The regional distribution of tractors is skewed. With the adoption of advanced tilling practices, the states with around 22% of the cropped area in the north make up for over half of the tractor population in the country and continue to have a higher demand. The states of Punjab, Haryana and Uttar Pradesh, driven by the Green Revolution with a higher accessibility to assured irrigation, became the front runners in the deployment of tractors.
Madhya Pradesh, Andhra Pradesh, Tamil Nadu, Maharashtra, Gujarat and even Rajasthan have recorded high rates of growth of tractor usage, although not commensurate with the available cropped area. The demand, steadily shifted to the emerging markets of southern and western India. At the beginning of the new mellinnium, these emerging markets contributed about 50% of sales, while the share of the mature states (northern) had fallen to under 44% against a near 63% earlier.
Punjab Tractors was in the forefront in developing variations of its models, in consonance with the crop and soil conditions. The company innovated the idea to have an area-specific branding like Swaraj Andhra in Andhra Pradesh. It had also doubled its capacity to 60,000 tractors a year to widen its marketing net. Punjab Tractors is, however, faced with the challenge from global majors like New Holland of the UK, John Deere of the US and SAME of Italy. These three entrants in the 31-40 HP product line, offered direct competition to the product range of Punjab Tractors. As a result, its capacity utilisation had come down to 50%. The company has, however, been sold.
International Tractors (ITL), with its Sonalika tractor launched in 1995, is in the 40-60 HP range. In the third quarter of 1999, the company had signed an MoU with Renault Agriculture, a 100% subsidiary of the Renault group of France, to manufacture and market Renault-designed tractors in India and neighbouring countries. These tractors are marketed side by side with International’s Sonalika being produced at its plant in Hoshiarpur in Punjab. The tie up, with a 20% equity stake of Renault, is considered strategic in the furtherance of the interest of the Indian company in the European and Asian markets for Sonalika. The two agreed to jointly participate in international marketing in an effort to market products of both the companies.
International Tractors, the makers of Sonalika-brand tractors was introducing 120-HP four-wheel-drive tractors in the domestic market by end 2007. Sonlika ranks third in the country in sales. The company is planning to infuse Rs 3 bn for doubling the production capacities of 50,000 units a year. At present, ITL manufactures tractors with the Sonalika brand in the power range 30-90 HP. The company is also working on modalities to introduce tractors of 90-120 HP. With the latest technology induction, the company is giving a very significant price advantage to the buyers.
The imported models cost Rs 1.2 to Rs 1.8 mn, the 120-HP-powered engine of Sonalika was to cost Rs 500,000 to Rs 800,000 only. The company has tied up with CLASS of Germany and Renault of France for the supply of high-powered tractors.
Morgan Stanley was eyeing a 5% stake in Sonalika Group. Besides Yanmar, Citibank and 3i hold 12% and 10%, respectively, in the Sonalika Group presently. The company also plans to float an IPO as part of its strategy to infuse Rs 8 bn over the next two years into operations in India. The IPO is aimed at raising Rs 4 bn to Rs 5 bn from the market.
Not resting on its laurels of the numero uno tractor manufacturer in the country, Mahindra & Mahindra (M&M) set sights to earn global status as well. It has emerged currently as the second largest producer in the world. The company with some eleven models under three main brands on offer – Bhoomiputra (for low-end customers), Sarpanch (for mid-end customers) and Arjun (for hi-end customers) has set up regional greenfield plants in India, and assembly units outside India to meet the global standards. The company also worked on a mini-tractor for small farmers in India. Besides, the assembly lines are expected to be installed in Europe, Turkey, Egypt and in Latin America, depending upon economic viability in these regions.
The company had announced plans to invest Rs 4 bn in October 2006 for the setting up of a new plant to make tractors, and expand the capacity at its Nagpur, Jaipur and Rudrapur facilities. The company had identified possible locations for the new plant, with a minimum annual production capacity of 40,000 units of tractors. It was expected to be operational by October 2008.
The company aimed at achieving a total production capacity of 120,000 units during 2006-07. It was achieved as a result of increased capacity of Jaipur facility to 15,000 units from the existing 10,000 units, that of Nagpur to 50,000 units and the Rudrapur plant to 39,000 units.
The company was also setting up a third tractor assembly plant in the United Stated with an initial capacity of 3,000 tractors. Mahindra started production from its Brisbane assembly facility in Australia and was to enhance its present production capacity of 3,000 units in China.
It set up an assembly unit in China, and had unveiled a ‘world tractor’ model to be assembled in China. M&M has also entered the Spanish market.
Eicher Motors divested its tractor, engine and gears divisions to TAFE for Rs 3.10 bn in mid-2005. As a result, the name of TAFE was changed to Motor and Tractor Ltd (TMTL). This catapulted the market share of TAFE through TMTL to near 33% in the Indian tractor market, taking it to the No.2 position. Under the deal, TAFE purchased Eicher’s tractor unit at Bhopal, the engine unit at Alwar and gears units at Parwanoo.
Power tillers industry in India had grown from 7,200 units in 1990-91 to over 16,000 units in 2000-01, realising a CAGR of about 8.3 % during the decade. During the second half of the decade (1995-2001), the growth was higher at 10.0%. During the quinquennium 2001-06, the industry sales went up from 16,020 units to 22,300 an increase marked by a CAGR of 6.3%. The first nine months of the year 2006-07 had achieved sales of 13,375 units.
This segment in India is constituted of two major players. The first, VST Tillers and Tractors has a technology tie-up with Mitsubishi of Japan holding 58% share of the market. The other dominant player is Kamco, Kerala with a 42% market share.
Spatially, north India accounts for 54% of the market followed by west and south regions with 16% and 20% shares respectively, of the total market. The industry was projected to achieve a demand of 17,450 units in 2006-07 and 21,000 units in 2009-10, which is expected to rise further to 28,500 by end 2014-15.
Sales turnover and net profit increased for most of the companies in 2008-09. For major companies like Escorts sales increased only marginally by 1% while net profit rose by 33% in 2008-09.
The slowdown survey by CII-Ascon for first 9 months of fiscal year revealed that some sub-segments of auto-sector reported a moderate growth (less than 10%) in production which include tractors, among others.
Demand : Past & Future
Mahindra & Mahindra
Escorts, HMT, Swaraj, TAFE, Mahindra, Eicher, Sonalika, Ford
Market Growth Rates
Upto 20 HP
Ford Motor, USA
Motokar, Czech Republic
ZF Passau, GmbH, Germany
Int. Harvestor Co. UK
Massey Ferguson, UK
Sisu Tractors, Finland Richards, UK Vattra, Finland Styere, Austria
Demand : Past & Future
Market Growth Rates
VST Tillers & Tractors
Source : Intecos – CIER
Cite This Work
To export a reference to this article please select a referencing style below: