Current Tractor Industry Scenario

Indian Tractor Industry: Issues, Challenges and Strategies

Key points  One

third of world’s tractor production is in India  Total turn over 10,000 Cr  Total investment 8000 Cr  Employment 28,000 people directly, 1,50,000 people indirectly  Tractor population 3,000,000 compared to 900,000 in China

F07 H1: Market Update  Monsoons:

Normal  Kharif Production: + 1.2 % vs. last year  Higher MSPs announced  Good Farm credit:  2005-06:

Rs.1,16,370 Crs.  2006-07(est.): Rs.1,75,000 Crs.  Bank

NPAs increasing – slow down in disbursements

Tractor – empowering the farmer 50 40 30 20 10 0

1970-71

2005-06

% share of farm power

Scope of improving share of mechanical power in agriculture At present following agricultural operations are not fully mechanized Spraying Inter-culture Harvesting Drying Packaging Storage

Mechanized tomato harvesting

Mechanized broccoli harvesting

Sales Data and Analysis

Category Car UV MPV M&HCV LCV Scooters Motor cycles Mopeds Three wheelers Tractors Total

Units sold 2005-06 1,052,287 199,063 67,459 221,542 169,722 992,032 6,201,619 375,922 437,072 292,908 10,009,626

2004-05 980,849 180,865 66,260 211,980 136,390 983,127 5,241,876 351,169 374,657 247,531 8,774,704

% growth 2005-06 2004-05 7.28 19.37 10.06 21.02 1.81 9.56 4.51 25.04 24.44 26.28 0.91 4.72 18.31 20.28 7.05 5.47 16.66 16.38 18.33 31 14.07 17.91

TRACTOR INDUSTRY GREW AT A CAGR OF 11% BETWEEN 2004-05 AFTER THREE YEARS CONTINUOUS SLUMP Tractor Industry (F-94 to F-2006) (Number of tractors) 1.5% CAGR

12.

5% CA

R

16.0

AG C %

250378 254871 257998

220943

236076

191202

GR A C

215005 171657

164306

0% . 1 1 292908

GR 247531

190348

138235

19000

18615

15272

9586

10969

10422

11645

14037

14606

14955

F96

F97 F98 F99 F20 00 F01 F02 F03 F04 F05 F06

18132

F95

F94

17899

INDIA

UK

13301

F 05 SALES 247531

26364

4016

10445

31696 2448 7032

16020 935

65394

52851

30330

FORCE MOTORS M&M LT-JD

ESCORTS PTL NHI

MGTL TAFE GROUP SONALIKA

HMT VST

F 06 SALES 292908

32017

4461

28297 2749

13214

7900

19951 1228

85028 66667

31396

FORCE MOTORS M&M LT-JD

ESCORTS PTL NHI

MGTL TAFE GROUP SONALIKA

HMT VST

F05 STATEWISE SALES 19894

16615

389

1639

13998

3084

638

366

17078 12408

45958

594 1181 15560 12396

199 11546

23830 32692

11471 4954

AP HP CHTSGR UTRNCHL

ASM J&K ORI WB

BIH KAR PJB OTHERS

1041

JHARK KER RAJ EXPORTS

GUJ MAH TN

HRY MP UP

F 06 STATE WISE SALES 28118

2418

22448

4335 1345

771 9946 2349 23237

44308

14572 758 1300

18302

25394

27949

683

12051 6679

AP HP CHTSGR UTRNCHL

ASM J&K ORI WB

BIH KAR PJB OTHERS

4940

17804 23201

JHARK KER RAJ EXPORTS

GUJ MAH TN

HRY MP UP

History of Indian tractor industry  1945

to 1960.

 War

surplus tractors and bulldozers were imported for land reclamation and cultivation in mid 1940's.  In 1947 Central and State Tractor Organizations were set up to develop and promote the supply and use of tractors in agriculture and up to 1960, the demand was met entirely through imports.  There were 8,500 tractors in use in 1951, 20,000 in 1955 and 37,000 by 1960.

History (contd…)  1961

to 1970.

 Local

production began in 1961 with five manufacturers producing a total of 880 units per year. Eicher, Gujarat Tractors, TAFE, Escorts, M&M.  By 1965 this had increased to over 5000 units per year and the total in use had risen to over 52000.  By 1970 annual production had exceeded 20000 units with over 146000 units working in the country.

History (contd…) 

1971 to 1980. Six new manufacturers were established during this period although three companies (Kirloskar Tractors, Harsha Tractors and Pittie Tractors) did not survive.  Escorts Ltd began local manufacture of Ford tractors in 1971 in collaboration with Ford, UK.  Others were HMT and PTL (SWARAJ)  Total production climbed steadily to 33000 in 1975 reaching 71000 by 1980.  Credit facilities for farmers continued to improve and the tractor market expanded rapidly with the total in use passing the half million mark by 1980. 

History (contd…) 

1981 to 1990. A further five (Auto Tractors, Haryana Tractors, United Auto Tractors, Asian Tractors, VST Tillers) manufacturers began production during this period but only last one survived in the increasingly competitive market place.  Annual production exceeded 75000 units by 1985 and reached 140000 in 1990 when the total in use was about 1.2 million.  Then India - a net importer up to the mid-seventies - became an exporter in the 80's mainly to countries in Africa. 

History (contd…)  1991

to 1997.

 Since

1992 it has not been necessary to obtain an industrial license for tractor manufacture in India.  By 1997 annual production exceeded 255000 units and the national tractor park had passed the two million mark.  India has now emerged as one of the world leaders in wheeled tractor production.

History (contd…) 

1997 to ... Seven new manufacturers have started production since 1997.  Bajaj Tempo  New Holland  John Deere (initially with L&T)  Same Deutz-Fahr (initially with Greaves)  Sonalika  Standard  Indo Farm 

Negative growth phase After sustaining a robust 14 per cent growth rate in 1994-98, the tractor industry's growth for the next two-three years had to come down as a natural process of alignment to the long-term growth of 8 per cent.  Over-production  Billing  Drought in 2001 and 2002  Piling of government stock of food grains upto 75 MT 

Current situation Intense competition has led to rapid advances in design and quality  Saturation achieved in Punjab with tractor density as high as 82 per 1000 ha against Indian average of 12.4, world average of 17.4 and 32.1 in developed countries.  But average HP per hectare is only 0.4 in India as against 2.6 in developed countries and 1.4 in world.  This give average HP per tractor of only 32.26 in India where as, developed countries and world HP per tractor is 81. 

8 Dimensions of Quality Performance - primary operating characteristics



Features - little extras



Reliability - no failure in a given time span



Conformance - meeting standards



Durability - length of usefulness



Serviceability - speed, ease of repair



Aesthetics - pleasing to the senses



Perceived quality - reputation



160000

Horse Power wise Tractor Sales in India

140000 120000 100000

21-30 HP 31-40 HP 41- 50 HP > 51 HP

80000 60000 40000 20000 0 F-00

F- 01

F- 02

F- 03

F- 04

F-05

F-06

Future prospects India has currently 168 million hectares of cultivable land which is second largest in the world.  Current tractor population base in India is 2.4 million tractors.  50 per cent of India's arable area, that is, more than 80 million hectares is covered by 10 million holdings. Even if half these holdings own tractors, it would push the total tractor population above five-million. 

Driving factors De-fragmentation and nuclear families  Irrigation facilities  Improvement in standard of living  Cheap credit  Rise in MSP (Minimum Support Price)  Other income – poultry, dairy, livestock, infrastructure projects  Improved features and quality of products  Economic growth 

Construction Equipment – The New Frontier Medium sized CE machinery demand has shot up due to various infrastructure projects in progress Tractor manufacturers are providing CE attachments and are giving tough competition to established players like JCB, TATA, CAT and L&T

Export scene 

Exports grew by 41% from 19894 in F05 to 28118 in F06



Africa – Libya, Algeria and South Africa offer sophisticated market while other African countries employ government tender system



North America – Demand of 50 HP tractors for secondary operations in the US has made it the largest emerging market for Indian tractor exports. Because of large cost-advantage from current local volumes, and improved manufacturing and product technology, Indian companies can aim and achieve a significant share in this segment of the US market. This is assuming they meet expectations on quality/feature/delivery fronts and provide top line after-sales-service.

12000

Horse Power wise Tractor Sales in Canada

10000 8000 < 40 HP 40-100 HP > 100 HP

6000 4000 2000 0 2002

2003

2004

2005

2006

160000

Horse Power wise Tractor Sales in US

140000 120000 100000

<40 HP 40 - 100 HP >100 HP

80000 60000 40000 20000 0 2002

2003

2004

2005

2006

Export scene (contd…) 

European Union – Turkey and Eastern Europe offer a growth opportunity whereas other markets are stagnant



Other major destinations for Indian tractors are the Middle East, SAARC and South East Asian countries.

Challenges ahead Fuel shortage  Conformance to European norms on 

Safety and ergonomics  Noise  Emission  Electronics 

Bottlenecks in form of testing and certification facilities in India  Competition from low cost Chinese products  Enhancement of farm machinery technology 

Alternate fuels Tractor manufacturers are reducing fuel consumption of their models as well as are working with alternate fuels to meet the challenge posed by global fuel price hike •Fuel efficiency improvement project •LPG / CNG operated tractor •Bio-diesel as additive to diesel •Diesel + Electric = Hybrid power •Hydrogen

Safety and Ergonomics  India

being a signatory to the WTO, Indian tractor manufacturers have to adhere to global regulations

Emission Tractor industry successfully achieved the emission requirement of EURO Stage II w.e.f. 1-10-2005. Next target is EURO Stage IIIA w.e.f. 1-42010. This will require advanced technologies like, Rotary pump, Turbocharger, Intercooler, Exhaust gas re-circulation, Common rail injection.

Electronics Precision farming based on GPS Yield mapping Input management Tractor electronics Traction control Engine optimization