Mahindra Cuts Tractor Sales Forecast as Sowing Area Drops

Tractor Sales Forecast Cut as Sowing Area Drops
Sales at the company co-founded by Chairman Anand Mahindra’s paternal grandfather J.C. Mahindra and his partner Ghulam Mohammed in 1945, may rise 12 percent to 664.3 billion rupees in the fiscal year, according to a median estimate of 10 analysts compiled by Bloomberg. Photographer: Abhijit Bhatlekar/Bloomberg

Mahindra & Mahindra Ltd., the world’s biggest tractor maker by volume, cut its forecast for sales growth of the farm equipment in India as the worst rainfall in three years delays crop sowing.

Mahindra estimates industry sales to expand as little as 2 percent in the year ending March 31, Pawan Goenka, president of the automotive and farm equipment division at the Mumbai-based company, said in an e-mail response yesterday. Goenka had earlier estimated sales to rise as much as 10 percent. Tractor revenue rose 22 percent at Mahindra last fiscal year.

Below-average rains prompted farmer Sandeep Chakane, a cane grower in Maharashtra state, to scrap plans to buy his second Deere & Co. tractor. The area under monsoon crops in India, the world’s second-largest producer of rice and wheat, dropped 6.2 percent as of Aug. 17, according to data from the farm ministry. Rain was deficient or scanty in 45 percent of the country, the India Meteorological Department said yesterday.

“There is no guarantee of a good crop this year because of less rain,” said Chakane, who was planning to spend 650,000 rupees ($11,774) on the tractor to farm his 12 acres (48,562 square meters) of land. “I will hold on to the cash.”

Mahindra, which has risen 12 percent this year, fell 1.2 percent to 761.95 rupees at the 3:30 p.m. close in Mumbai, making it the worst performer in the BSE Auto Index. Escorts Ltd., India’s second-largest publicly traded tractor maker, lost 1.8 percent to 62.9 rupees.

Deliveries of the farm equipment made up for 22 percent of Mahindra’s sales in the year ended March 31. Selling utility vehicles such as Xylo and XUV500 accounted for 55 percent of its revenue.

Sowing Area

Sales at the company co-founded by Chairman Anand Mahindra’s paternal grandfather J.C. Mahindra and his partner Ghulam Mohammed in 1945, may rise 12 percent to 664.3 billion rupees in the fiscal year, according to a median estimate of 10 analysts compiled by Bloomberg. That’s the slowest pace of growth in four years, according to data compiled by Bloomberg.

Rice sowing dropped 3.4 percent to 30.8 million hectares from a year earlier, the farm ministry said. Cotton area declined to 11.02 million hectares from 11.7 million hectares, and oilseeds area slid to 16.1 million hectares from 16.7 million hectares, it said.

“The spatial pattern of monsoon suggests that output losses could be substantial for coarse cereals and pulses,” the Reserve Bank of India said in its annual report released yesterday. “The monsoon has been unsatisfactory to a degree that has dampened the prospects for agriculture during” the year that started April 1, according to the report.

Overseas Sales

The central bank on July 31 raised its inflation forecast to 7 percent as scanty monsoon stokes price pressures. The Reserve Bank cut its growth estimate for Asia’s third-largest economy, which expanded at its slowest pace in almost a decade in the three months ended March 31, to 6.5 percent.

Tractor sales may be little changed at 625,888 units in the 12 months starting April 1 after an 11 percent expansion a year earlier, according to credit assessor ICRA Ltd.

Companies including International Tractors Ltd. and Tractors & Farm Equipment Ltd., or TAFE, are tapping overseas markets and adding products to lure customers in the construction industry.

International Tractors, the maker of the Sonalika brand, plans to raise funds selling a stake and use the proceeds for acquisitions in Europe and expansion overseas, Chairman L.D. Mittal said.

International Tractors’ exports surged 49 percent this year, Mittal said. TAFE forecasts it will add to the 22,000 tractors it sold in the U.S. last year even as a drought ravages the North American nation, according company spokesman Vijaykumar Browning. Mahindra sold more than 10,000 units in the U.S. last year, according to its annual report.

New Products

“The U.S. market is doing well for us,” Mahindra’s Goenka said. The company’s overseas sales increased 16 percent to 13,722 in the 12 months to March.

Overseas sales look “promising through inclusion of new export destinations, increased product offerings in the higher horse power segment and ramping up of capacities,” said Subrata Ray, co-head for corporate-sector ratings at ICRA. Companies have also expanded their “product portfolio to come out with more application-based offerings, and to cater to niche market segments,” he said.

Weak demand in India and Latin America prompted Deere, the world’s largest maker of agriculture equipment, to cut its full-year profit forecast to $3.1 billion on Aug. 15 from a May estimate of $3.35 billion.

Tractor Dealers

Asia sales will drop “moderately” in the year because of “softening” in India and China, Deere said. The U.S. company accounted for 9.2 percent of India’s tractor market in the year ended March 31. Mahindra controlled 39 percent, while TAFE had 24 percent share, according to ICRA.

For tractor dealers in western Indian states such as Maharashtra, home to India’s commercial capital Mumbai, the drop in sales may be larger after a 30 percent rain deficit since June 1.

“Customers who have booked tractors have left their cash deposits with me and are saying that they will only take delivery once the rains come,” said Sopan Tupe, owner of a TAFE dealership in Pune, the state’s second-largest city. Tupe expects to sell just half of the 100 tractors he sold last year.

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