India's Two Biggest Tractor Makers Are On Divergent Paths

Tractor makers have been nursing their wounds from the previous fiscal year, with hopes for better recovery in financial year 2025. While macro factors influence demand for commercial vehicles and tractor makers, they have generally mimicked each other, till now.

April sales of tractor makers showed divergent trends. Mahindra and Mahindra Ltd. reported a whopping 42% growth in sales, while its peer Escorts Kubota Ltd.'s sales fell 11% compared to the previous month.

Festivals like Navratri and Gudi Padwa fell during the month and aided sales. Generally, sales of lower power output bikes (100 cc), commercial vehicles and tractors are planned around this time due to the ‘shubh muhurat'. Automakers also tend to fill up inventory in anticipation of increased demand.

The previous year has been forgettable for both Mahindra and Escorts on the sales front. While Mahindra’s sales saw a degrowth of 5% at 3,52,362 units in the previous fiscal, Escorts Kubota reported a 7% drop in sales, coming in at 95,858 units. The industry saw a degrowth of roughly 7% as well.

Sales growth trends are usually similar for most players, whether on the upside or downside. Seldom does one players have a strong wholesale show, while the other has a poor one. While the time frame of a month might have been a one-off, the stark difference makes sales momentum a key monitorable going forward.

Escorts' numbers in fourth quarter were in line, according to Yes Securities.

But in its commentary, the company said that Maharashtra and Karnataka—which contribute major volumes—saw a drop. Recovery in these states will be key and will directly benefit the company. North has traditionally been a strong pocket for the company but in last couple of years it has lost market share. Hence, focus is on regaining the market share in the geography.

The West is a strong region for the industry and contributes roughly 20% to industry volumes. It will be the second important focus area, it said.

Even as domestic tractor industry sales fell, Escorts' overall market share grew to 10.3% in fiscal 2024, compared to 10.1%. Its inventory levels are between 37-39 days, which is normal for the company, it said the concall.

The company is also incurring a capex of roughly Rs 4,500 crore for a greenfield capacity in Rajasthan over the next few years and the targeted completion is by FY27-28. It is aiming to complete land acquisition this year for the same.

Nuvama is positive post the quarter four results and has a target price of Rs 4,200 per share, which is an upside of 21%. Agriculture segment growth is likely to turn around in FY25, and expectation of normal monsoon is a key positive, it said.

Emkay is also positive with a target price of Rs 3,850, a 12% upside. Export opportunity will be aided by the company's strong parentage, and commencement of direct component exports amid global sourcing shift to India from China will help growth, the brokerage said.