Mahindra Bets on Low-Cost Tractor as India Farmers Spurn Oxen for Machines
Stock Chart for Mahindra & Mahindra Ltd (MM)
Mahindra & Mahindra Ltd., India’s largest tractor maker, will roll out its cheapest model in more parts of the country as farmers switch to machines from oxen.
Mahindra may sell as many as 15,000 units of the 15- horsepower tractor annually by March 2014, Bishwambhar Mishra, head of the company’s Swaraj tractor unit, said in a phone interview yesterday from Chandigarh, India. The 165,000-rupee ($3,500) model was unveiled in October in one state, where 1,000 units were sold through March.
Soaring food prices and rising incomes will enable farmers with land holdings of less than 5 acres, who account for about 80 percent of the total, to buy small tractors as replacement for oxen, Mishra said. Tata Motors Ltd. began selling the world’s cheapest car for $2,500 last year, and the government unveiled a $35 tablet computer last week as Indian developers devise technology and machinery targeting first-time users.
“The opportunity is huge,” said Umesh Karne, an analyst at Brics Securities Ltd. in Mumbai, who rates Mahindra “buy.”
Per-capita incomes have almost doubled in the past five years in India. The nation’s economy has grown an average 8.5 percent annually during the past five years and will probably expand at a 9 percent annual pace by the year ending March 31, 2012, Prime Minister Manmohan Singh said at the G-20 Summit in Toronto last month.
India has a low rate of farm mechanization, with 13 tractors for every 1,000 hectares, less than half the U.S. rate, ICRA Ltd. said in May. Almost half the 439,600 tractors sold in India in the year ended March were in the 31 horsepower to 40 horsepower range, it said, putting them beyond the reach of small farmers.
As sales increase, profit from the cheaper model will also rise, said Mishra. “Once you ramp up the volume, it will add to the profitability, because it’s a very investment-light model.”
Mahindra gained as much as 2.4 percent to 654.9 rupees and changed hands at 652.75 rupees at 11:53 a.m. in Mumbai.
Mahindra has outsourced production of the tractor, called Yuvraj, Mishra said. The name means “crown prince” in Hindi. The company first started selling the tractor in the western state of Gujarat and will now leverage its nationwide network of more than 1,500 sales outlets, Mishra said.
Many farmers still use oxen for plowing, Mishra said. Their productivity can increase more than fivefold with a tractor, and it costs about 60,000 rupees to buy a pair of oxen, he said.
Higher purchase prices set by the government for wheat and rice are helping boost farmers’ incomes, Mishra said. India’s food inflation rate has stayed above 10 percent for a 14th straight month.
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