Tractor sales will be affected in the brief period as the second phase of the COVID-19 pandemic hits rural communities, but they are expected to pick up towards the end of the fiscal year, giving the industry a mid-single figure rise, as per a senior official of farm equipment major Escorts Ltd.
In 2021-22, the company, which has a joint venture with Japan's Kubota, expects a 55 percent increase in exports, with Europe serving as one of the key drivers. It also aims to enter markets in Southeast Asia and Brazil through its partner.
"Unlike the first step of COVID-19, when the effect on the rural market was minimal, this time it is much more widespread. It is affecting not only the metropolitan region, but also channel partners and dealerships, which are closed as a result of state-wide lockdowns. Clearly, this will have an impact; it will be more serious, and it will affect everyone "Bharat Madan, CFO of Escorts Ltd Group, said.
He was referring to a question about how the pandemic's second wave would affect tractor sales. "In the short term, I believe this will have an impact. The first quarter will undoubtedly bear the brunt of this, but we should see demand rebound in the second half, just as we did last time, when we had a lot of pent-up demand following the lockdown "he said.
Although the sowing season has yet to begin, Madan believes that "the next season and H2 will make up" for this year's "sowing season might not really be that sort of good numbers."
"All the rural factors on the agriculture side are still optimistic," Madan said, adding that "this will offer a mid-single digit sort of growth over last year." According to the Federation of Automobile Dealers Associations (FADA), tractor registrations increased by 16.11 percent in 2020-21, to 6,44,779 units, up from 5,55,315 in 2019-20.
"Because little has changed on the ground in the rural area, it still appears to be a positive situation. As of now, all emotions are positive. "We have to keep our fingers crossed that there isn't a third wave, which is more serious than what we've seen," Madan said. In terms of exports, he said, "Today, we export more than 500 tractors per month. So we're expecting a decent number this year, 6,000-7,000 units compared to 4,000-4,500 last year."
Madan stated that Escorts Ltd will continue to concentrate on exports. "That's one sector where we'll keep improving year after year. The majority of exports are currently going to the European market, where smaller tractors in the sub-30 hp category are doing exceptionally well. It is now the most common export model, which has greatly aided the company's growth."
He added that the business also caters to the 60-70 hp segment in other global markets. Escorts Ltd is also expanding its global presence with the help of its joint venture partner Kubota. "We began exporting to Kubota's European market after they opened their network. They want to market it in Southeast Asia, specifically Thailand, Vietnam, and Myanmar. These markets would become available and he went on to say that the business will expand to the Americas and countries such as Brazil.
When questioned whether the second wave of the pandemic has had an effect on the company's anticipated Rs 100 crore investment to increase production capacity from 1.2 lakh to 1.8 lakh units per year, he said no. "There's no way I'm going to hold back. In any case, we anticipate that the pent-up demand will materialise, and we will see strong results. That must happen, or we will once again be at capacity constraints. So we're moving forward with the expansion plan, and we should be able to operate at full capacity by August-September."
Beyond that, Madan stated that the company is not looking for new investments because it already has enough capacity to meet potential business demand. "This is the third year in a row that the monsoon has been strong. We anticipate that some corrections will occur next year "He added that current capacity should be sufficient for at least the next few years to achieve the company's goal of increasing market share.
Nonetheless, he mentioned that the company would have to decide whether to make new investments at its existing plants or pursue a greenfield venture with its joint venture partner Kubota for potential capacity expansion. Escorts currently has manufacturing facilities in Faridabad.
