Tractor sales to be hit as second Covid wave impacting rural areas: Escorts
The company, which has a joint venture with Japan’s Kubota, is looking at around 55 per cent growth in exports in 2021-22 with Europe serving as one of the main drivers while it plans to enter markets in South East Asia and Brazil through its partner.
“Unlike in the first phase (of COVID-19) where the impact was not at all there in the rural market, this time it is all very spread out. It is impacting not only the urban area, (but) channel partners and dealerships are also closed because of lockdown in states. Clearly this will have an impact, it is more severe and it is going to have an impact on everyone,” Escorts Ltd Group CFO Bharat Madan told PTI.
He was responding to a query on how the second wave of the pandemic is likely to impact tractor sales.
“I think in the short term this will have an impact. Q1 will definitely bear the major brunt of this but in the second half we should see demand coming back like last time, we had a good pent-up demand after lockdown,” he added.
While the sowing season is yet to start and this time it looks like the “sowing season may not really be that sort of good numbers”, Madan said, “But I think the next season and H2 will make up.”
Asked if the high growth of last fiscal could be repeated, he replied in the negative saying “that doesn’t look likely at all because the base itself has gone up so high now because the industry touched a new peak last year”.
However, Madan said “all the rural factors are still positive on the agriculture side” and “this will give a mid-single digit sort of growth over last year”.
As per Federation of Automobile Dealers Associations (FADA), tractor registrations in 2020-21 grew by 16.11 per cent at 6,44,779 units as against 5,55,315 units in 2019-20.
“Overall it still looks positive because nothing has changed on the ground in the rural side. Sentiments are all good as of now. It is a question of how soon we can tide over this issue and then people get a relief and they get vaccinated,” Madan said, however adding “we have to keep our fingers crossed that there is no third wave, which is more severe than what we have seen”.
On the export front, he said, “Today we are doing 500 plus tractors exports every month. So this year we are looking at a good number, 6,000-7,000 units as against 4,000-4,500 we did last year.”
Stating that Escorts Ltd continues its focus on exports, Madan said, “That’s one area we will continue to improve year on year. This time the maximum exports are happening to European market, where smaller tractors of sub-30 hp segment are doing extremely well. It is the largest selling model in exports now, and that has really contributed to the good growth.”
In other global markets, he said the company is also catering in the 60-70 hp segment.
Escorts Ltd is also leveraging its joint venture partner Kubota for its global footprint expansion.
“Now with Kubota also opening their network, we started exporting to them to European market. They are planning to take it to South East Asian market, Thailand, Vietnam, Myanmar. These markets will open up,” he said adding the company will also move to the Americas and countries like Brazil.
When asked if the second wave of the pandemic has impacted its planned Rs 100 crore investment to expand its production capacity to 1.8 lakh units per annum from 1.2 lakh units, he replied in the negative.
“There is no holding back. In any case since we are expecting the pent-up demand will happen and we will be seeing good numbers. That has to happen otherwise we will be again falling short of capacity. So we are going ahead with the plan of expansion and by August-September we should have that expanded capacity (available).”
Madan, however, said beyond that the company is not looking for fresh investments as it would have enough capacity available to meet the future market demand.
“This is the third year in a row that we are seeing a good monsoon. We expect, maybe, some corrections will set in next year,” he said, adding the existing capacity should be enough for at least the next few years to meet the company’s aspiration for market share improvement.
Nevertheless, he said for future capacity expansion the company will have to decide whether it would put fresh investments at its existing plants or look at a greenfield venture with its joint partner Kubota. Escorts currently has production units at Faridabad.
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