Brokerage firm Emkay Global Financial Services believes that the tractor industry will see a turnaround in the financial year 2022-2023 (FY23) and it may grow by 20-25 percent in the first quarter of FY23 (Q1FY23).
"Our channel checks indicate that the tractor industry is likely to grow by 20-25 percent in Q1FY23. Beginning the quarter on a strong note, the industry reported 41 percent year-on-year (YoY) growth in April 2022, aided by improvement in farmer sentiments and inventory build-up with dealers," said Emkay Global.
Emkay underscored farmer sentiments are better due to an improvement in Rabi crop realizations and expectations of healthy Kharif crops owing to a normal monsoon. Instead of participating in government procurement, farmers are selling their produce directly to the market thanks to strong demand, resulting in better and quicker cash inflows.
Tractor penetration stands at nearly 50 tractors for every 1,000 hectares. Considering low penetration, there is good potential for growth over the medium term, said Emkay Global. The tractor population can more than double the current levels of 7.5mn units. The industry is expected to see a 6-7 percent CAGR in the medium term.
The brokerage firm's channel checks showed due to an increase in heat levels, harvest has been early by 20-30 days, resulting in early cash flow. As harvest was early, most farmers have been able to cultivate an additional crop, resulting in additional cash flow.
"FY23 wholesales growth can be up to 6 percent, considering strong Q1FY23 and expectations of a normal monsoon. Among regions, the south and central regions could see up to 12 percent and 7 percent growth. The north and west regions could remain flat. Meanwhile, the east region is expected to see a double-digit decline," said Emkay Global.
However, the downside risks to growth include a deficient monsoon and adverse government policies. The government may restrict exports to achieve its procurement targets. State governments may choose to provide some premium on MSPs to farmers to improve procurement, the brokerage firm highlighted.
Disclaimer: The views and recommendations made above are of the broking firm and not of MintGenie.