INSUBCONTINENT EXCLUSIVE:
ET Intelligence Group: Over the past two years, India’s truck- and tractor-makers were seeking to join passenger cars on the growth
highway, but lingering effects of the currency-note swap and introduction of the uniform producer levy held them back from moving into top
gear.
The fog on the windshield appears to have cleared now
In the past one month, Mahindra and Mahindra, Escorts and Ashok Leyland have revised upward their volume growth outlook for the rest of
FY19, pointing to robust unmet demand in Asia’s third-biggest economy.
Mahindra Mahindra, India’s largest tractor maker, raised the
tractor industry volume guidance to 12-14 per cent for FY19, compared with the previous forecast of 8-10 per cent made after the March
Escorts, India’s fourth-largest tractor maker, followed the market leader and revised is volume growth guidance to 12-15 per cent for the
current fiscal from 9-11 per cent.
The tractor industry in the three months to June climbed 26 per cent to 2,24,729 units, the highest ever
growth in the first quarter
This means to grow at 14 per cent volume growth in the current year, the quarterly run-rate required is 1,95,000 units, which is lower than
the first quarter volumes.
Pawan Goenka, managing director at MM, said that volume growth in the second quarter is likely to be flat
It will pick-up due to the festive season and could comfortably reach 14 per cent for the full year.
A couple of factors should boost
First, although the overall monsoon deficit is higher than the normal range, the geographical spread of the rains has been encouraging
About 82 per cent of India has received rainfall in the average range
Second, sowing has been higher than five-year average and improving rainfall distribution in August may boost sowing further, with late
sowing increasing the reliance on modern agricultural equipment.
Last, the inventory of tractors at dealers has been lower than
average.
Typically, the upcycle in the tractor industry ranges between four and five years
Given that this year is the fourth in the upcycle, many experts believe that volume growth could taper down in FY20
However, tractor makers believe that peak volume in the current cycle was reached in the last fiscal year
Hence volume growth could sustain in the medium term.
The optimism isn’t restricted to tractor makers
Ashok Leyland, the country’s second-biggest maker of cargo vehicles, could surprise the Street
Vinod Dasari, managing director of the truck-maker, told ET that the MHCV industry volume growth in FY19 is expected to be 15 per cent, up
from the previous forecast of 10 per cent.
“We believe the change in axle norms could impact 2-3 per cent of the total industry growth
However, it is likely to be offset by higher volume growth of white goods and improving GDP growth,” Dasari said.
The MHCV volume in the
first quarter of the current fiscal grew 83.5 per cent to 89,027 units, according to SIAM
Interestingly, despite lower sales in the second fortnight of July because of the uncertainty associated with axle norms, Ashok Leyland and
Tata Motors reported 22 per cent and 25 per cent volume growths, respectively, in July.
Pre-buying ahead of the implementation of BS-VI
norms should prompt the likes of Ashok Leyland to increase vehicle prices by 12-15 per cent
According to Ashok Leyland, industry growth of FY20 could be 30-35 per cent as the transition to new emission norms in countries such as the
US and China show that pre-buying lift industry volumes by 30-40 per cent.
Besides vehicle makers, some supplier industries also revised
upward their volume guidance
Balkrishna Industries, a maker of off-highway tyres, has raised its production volume guidance to 2,25,000-2,30,000 tons after the June
quarter earnings from 2,20,000 tons earlier.
