MUMBAI: Farm equipment manufacturers withstood the sales slump better in May than others in the automobile sector. Mahindra & Mahindra Ltd (M&M) reported a 2% growth in farm equipment sales in May in the domestic market.
Another notable manufacturer of agriculture machinery Escorts Ltd reported tractor sales of 6,454 in domestic market, a mere 0.5% fall from the year ago month. Both companies saw significant fall in exports, perhaps due to logistics challenges and shutdowns in overseas markets.
Even so, the sales readings are notably better than companies such a Maruti Suzuki India Ltd and Hero MotoCorp Ltd, which reported an 82-88% slump in domestic sales. Commercial vehicle manufacturers such as Ashok Leyland Ltd fared worse reporting a 90% fall in domestic sales.
M&M’s passenger and commercial vehicles business did not fare better either. The combined sales of passenger, commercial vehicles, and three-wheelers dropped 79% in May, reflecting the impact of the lockdown.
But timely relaxation of restrictions for farm activity and rural sector helped M&M and Escorts recover. Note that both the companies reported a record 83-87% fall in domestic sales in April.
Financial results and management commentaries of notable agriculture inputs suppliers such as Coromandel International Ltd, Rallis India Ltd and UPL Ltd also indicate healthy demand from the farm sector, helped by better rabi crop season and availability of water.
Further, prediction of normal monsoon rains this year can aid kharif crop season. This can support farm equipment sales, helping recovery at M&M and Escorts.
“Our industry checks suggest that nearly all dealerships are open,” Nomura research said in a note. “We believe the tractor segment should be the key beneficiary of rabi harvests, high government procurement of wheat, expectations of normal monsoons and the sharp ~70% jump in MGNREGA allocation by the government. Thus, we see upside risks to our tractor industry volume estimates of -15%/+25% in FY21/22F,” adds analysts at Nomura. MGNREGA is Mahatma Gandhi National Rural Employment Guarantee Act, a social security programme.