Despite a slower growth in tractor sales this year, non-banking finance companies (NBFCs) continue to bet on tractor financing as no immediate recovery is seen in the commercial vehicle (CV) and car businesses.
After a bumper last year (fiscal 2014), untimely rains and higher base may slow the growth of tractor sales this fiscal.
The industry grew 20% last year, while it is expected to grow 5-10% this year, as per the estimates. Also, the El Nino weather formation may impact agri output, which, in turn, may affect tractor sales.
According to S Sridhar, CEO of Escorts Agri Machinery, the business is currently slower than the expected.
Despite the odds, major NBFCs are looking at increasing their focus on the tractor segment as sales of commercial vehicles and cars continue to decline.
From their peak in fiscal 2012, the overall CV sales have seen a drop of almost 22% in the past two fiscals, as per the data provided by Society of Indian Automobile Manufacturers.
For Mahindra Finance, a part of the Mahindra & Mahindra (M&M) group, tractor business at present forms 18-20% of company's balance-sheet.
About 30% of M&M and Swaraj tractors are currently financed by Mahindra Finance, while on the industry side, its share could be around 15-16%.
"Even though the tractor market is expected to grow slower, we at Mahindra Finance have not slowed down our focus on the segment. In fact, we have started financing second-hand tractors as well," said Ramesh Iyer, managing director, Mahindra Finance.
When asked if the company is looking to expand the tractor business this year, Iyer said it will look at protecting its market share and growing the volumes further.
The company is also looking at increasing its penetration in the rural market.
Mahindra Finance, which had about 970 branches in March end, is looking at adding 150 more in the current fiscal.
Umesh Revankar, MD and CEO of Shriram Trasport Finance, one of the largest NBFCs, said, "Tractor sales may be slower this year and El Nino may have an impact in certain pockets of the country, especially in the North-Western region, which are the biggest markets for tractors.
However, tractor segment is an attractive segment as no immediate recovery is expected in the CV segment and car sales are not likely to be robust this year. We would be focusing little more on the tractor category as we will benefit from better connectivity and better penetration this year," he said.
At present, tractors form around 6% of Shriram's portfolio, which it is looking to grow to 10% in the next 2-3 years.
There are about half-a-dozen major NBFCs financing the tractor sales including L&T Finance, Sundaram Finance, Magma Fincorp, Sriram Transport Finance and Mahindra Finance. Apart from these national players, several small regional players account for a sizeable chunk of the market.
According to an analyst with a foreign brokerage, the tractor segment for most major NBFCs is a good business with better margins.