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

0

10

20

30

40

50

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

Category2005-06 2004-05 2005-06 2004-05

Car 1,052,287 980,849 7.28 19.37UV 199,063 180,865 10.06 21.02MPV 67,459 66,260 1.81 9.56M&HCV 221,542 211,980 4.51 25.04LCV 169,722 136,390 24.44 26.28Scooters 992,032 983,127 0.91 4.72Motor cycles 6,201,619 5,241,876 18.31 20.28Mopeds 375,922 351,169 7.05 5.47Three wheelers 437,072 374,657 16.66 16.38Tractors 292,908 247,531 18.33 31Total 10,009,626 8,774,704 14.07 17.91

Units sold % growth

164306191202

220943250378 254871 257998

171657190348

247531

292908

17899 18132 19000 18615 15272 9586 10969 10422 11645 14037 14606 14955 13301

215005236076

138235

F-94

F-95

F-96

F-97

F-98

F-99

F-200

0F-0

1

F-02

F-03

F-04

F-05

F-06

INDIA UK

1.5% CAGR

TRACTOR INDUSTRY GREW AT A CAGR OF 11% BETWEEN 2004-05 AFTER THREE YEARS CONTINUOUS SLUMP

16.0% CAGR

Tractor Industry (F-94 to F-2006)(Number of tractors)

12.5%CAGR

11.0% CAGR

F 05 SALES 247531

401631696

2448

7032

65394

30330

52851

935

16020

10445

26364

FORCE MOTORS ESCORTS MGTL HMT

M&M PTL TAFE GROUP VST

LT-JD NHI SONALIKA

F 06 SALES 292908

4461 28297

2749

7900

85028

31396

66667

1228

19951

13214

32017

FORCE MOTORS ESCORTS MGTL HMT

M&M PTL TAFE GROUP VST

LT-JD NHI SONALIKA

F05 STATEWISE SALES16615

389

13998

638

17078

12408

594

1181

15560

199

11546

32692

10414954

11471

23830

12396

45958

366

3084

1639

19894

AP ASM BIH JHARK GUJ HRY

HP J&K KAR KER MAH MP

CHTSGR ORI PJB RAJ TN UP

UTRNCHL WB OTHERS EXPORTS

F 06 STATE WISE SALES

9946

23237

14572

758

1300

25394

683

17804

232016679

12051

27949

18302

44308

1345

4335

2418

28118

2349

4940

77122448

AP ASM BIH JHARK GUJ HRY

HP J&K KAR KER MAH MP

CHTSGR ORI PJB RAJ TN UP

UTRNCHL WB OTHERS EXPORTS

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 Quality8 Dimensions of QualityPerformance - 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

0

20000

40000

60000

80000

100000

120000

140000

160000

F-00 F- 01 F- 02 F- 03 F- 04 F-05 F-06

21-30 HP

31-40 HP

41- 50 HP

> 51 HP

Horse Power wise Tractor Sales in India

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.

0

2000

4000

6000

8000

10000

12000

2002 2003 2004 2005 2006

< 40 HP

40-100 HP

> 100 HP

Horse Power wise Tractor Sales in Canada

0

20000

40000

60000

80000

100000

120000

140000

160000

2002 2003 2004 2005 2006

<40 HP

40 - 100 HP

>100 HP

Horse Power wise Tractor Sales in US

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 fuelsTractor 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

EmissionTractor 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. 1-4-2010. This will require advanced technologies like, Rotary pump, Turbocharger, Intercooler, Exhaust gas re-circulation, Common rail injection.

ElectronicsPrecision farming based on GPS

Yield mapping

Input management

Tractor electronics

Traction control

Engine optimization