Use for non-farming operations spur tractor sales

Tractor makers are seeing a big sales opportunity as tractors are being increasingly used for non-farming operations in the country.

As rural population gets less dependent on agriculture, tractors are being used for allied and other activities. This is reducing the productive life of tractors, necessitating faster replacements.

A recent Citi report pointed out that haulage applications have reduced the life of a tractor to 3-5 years now from 7-9 years a few years ago.

Tractor manufacturers such as Mahindra and Mahindra and Escorts are trying to cash in on this opportunity.

“Earlier a tractor was replaced in 8-10 years. But now it is getting replaced in 3-5 years. This is more to do with the kind of application one does with the product. Today a tractor is used for various applications apart from farming,” said Sanjeev Goyle, senior vice-president, marketing and Applitrac, at Mahindra and Mahindra.

Ramesh Iyer, managing director and member of the group executive board of Mahindra Finance, said earlier a tractor was purchased for farming application, but now 30-40% of the cash flow comes from non-farming applications.

“They attach trailers, excavators, loaders and use them for contractual purpose. So the rural population is no more crop or season dependent. Due to this, life of a tractor is going down, giving us more opportunities to finance,” he said.

Also, higher horsepower tractors are attracting more demand. Tractors of 40-50 HP are growing faster than 30-40 HP ones, experts said.

“The key reason driving the demand for higher HP is their usage for non-farming applications. Currently, the ratio for tractors sold for farming and non-farming applications is 55:45. It is expected to be 50:50 going forward,” Goyle said.

Tractor makers are optimistic of the growing potential of this segment.

Domestic tractor sales grew a healthy 22% last fiscal at 480,000 units and the industry is expecting a growth of 16% this year. Mahindra and Mahindra dominates the market with an around 42% share.

According to a recent report by rating agency Care Research, “Looking at the huge opportunities in the domestic market, almost all major tractor manufacturers have announced expansion plans for the next 2-3 years. It is estimated that around Rs1,800-2,000 crore has been lined up towards investments in capacity expansion and product development.”

According to a report by another rating agency Icra in February, the current low levels of tractor penetration, strong governmental focus on availability of finance for agriculture mechanisation tools and on rural development and the use of tractors for non-agricultural applications augur well for the industry.