Healthy monsoon to support tractor sales amid COVID-19 pandemic

Credit rating agency, CRISIL released its forecast on India's tractors on Monday, stating its belief that a good monsoon would act as a cushion for tractor sales amidst the ongoing COVID-19 pandemic.

Indian Meteorological Department (IMD) projected the south-west monsoon to be at 102 per cent of the long period average (LPA) in the calendar year 2020. It stated that the south-west monsoon has covered the entire country 12 days prior to the usual date, this year. The forecast for July and August which are crucial months for Kharif crops is also hopeful at 103 per cent and 97 per cent respectively, over LPA.

Well-distributed monsoons in the country will benefit tractor sales and counter the 37 per cent decline in April & May. It expects tractor volume will hardly be one per cent below last fiscal's level, as against double-digit decline expected for the rest of the automobile industry. Previously, the agency had predicted the passenger vehicle sales volume (including exports) to drop nearly 22-25 per cent this fiscal to a decadal low of approximately 26.5 lakh units. Furthermore, lower raw material costs and strong balance sheets reflect a stable credit outlook for tractor makers this year.

Upon unlocking of the recent lockdown, 75 per cent of the tractor dealerships have reopened and tractor sales volume in May recorded four per cent on-year growth led by pent-up demand.

A rise in minimum support prices (MSP) by three to eight per cent for major crops in this Kharif season would help rural incomes. Nonetheless, the recent locust attack could still play spoilsport; it occurred when most of the rabi crop had been harvested and sowing was yet to commence for the Kharif season. 

On the profitability front, the agency expects that sustained volumes along with benign raw material prices will support EBIT margins this year.