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1994-95 to 1998-1999: The removal of restrictions imposed on credit for farm mechanisation and adequate rainfall in 1993 resulted in high sales growth during 1994-95 and 1997-98. The rise in tractor sales was marginal in 1998-99 due to inadequate rainfall, higher food grain stocks with the Food Corporation of India (FCI), low procurement prices of the government, and the consequent low farm income. 1999-2000 to 2002-03: Following the trend of 1998-99, the rise in tractor sales was marginal in 1999-2000 owing to the reasons mentioned above. However, there was a steep decline in 2001-02 and 2002-03 with rising inventories at dealers. 2003-04 to 2008-09: Tractor sales recovered in 2003-04 and continued to rise till 2006-07, mainly due to a normal monsoon, rising custom-hiring income, easy availability of credit, strong exports and higher focus of players. In 200708 and 2008-09, tractor sales fell, due to tightening of credit by financial institutions and low rainfall. 2009-10 to 2011-12: After a steep fall over the previous 2 years, tractor sales recovered sharply in 2009-10, crossing the peak levels of 2006-07. It grew by 28 per cent (y-o-y), mainly due to easy availability of finance and increase in minimum support prices, coupled with a better monsoon. Tractor sales continued its growth trajectory of 23.8 per cent (y-o-y) in 2010-11 on account of persistent buoyant demand from the agriculture sector and commercial segment. For 2011-12, growth in tractor sales moderated to around 12 per cent (y-o-y) on account of the high base of the last 2 years, coupled with inadequate rainfall and declining prices of major crops since the second half of 2011-12.
Landholding pattern
The average landholding size in India is very low, where around 60 per cent of total landholding size is less than 4 hectares of land. This has been a deterrent for tractor demand. Moreover, the average landholding size has been declining due to socioeconomic factors such as the breakup of joint families and the division of ancestral land into smaller portions. This has both, a positive and negative impact on demand for tractors. With the division of larger landholdings into smaller holdings, the number of tractors required is expected to rise. However, the purchase of a tractor would become uneconomical for small farmers due to a reduction in farm size (as a result of the sub-division of already small landholdings). But, with the proportion of landholdings below 2 hectares being very high, the consolidation of landholdings will drive demand in the long run.
Availability of credit
Commercial banks, regional rural banks and land development banks finance 85-90 per cent of the tractors purchased. The government's thrust on agri-financing has been supplementing demand for tractors. For e.g., the minimum landholding taken as mortgage for financing a tractor has come down to 2-4 acres from 8 acres a few years back. This, in turn, has increased the affordability of farmers.
Cropping pattern
Farmers are being encouraged and educated by state governments to improve farm productivity, and consequently increase their incomes. In order to improve farm productivity, farmers are practicing multiple cropping. Consequently, the use of tractors helps the farmer complete operations quickly, following which, he can move on to the second crop.
Raw material cost is the largest expense head for the tractor industry. Alloy steel and pig iron are the primary components, accounting for 75-80 per cent of the total raw material cost. Prices of pig iron and steel have been increasing over the last 2 years, impacting the operating margins of most players. Average prices of pig iron have increased by around 9 per cent in 2011-12 and those of steel prices have increased by around 3 per cent (y-oy). Both the prices have increased over the high base of last year.
Structure of CV industry
CRISIL Research expects 9-11 per cent growth in the passenger vehicles segment, with utility vehicles growing by 15-17 per cent versus a 8-10 per cent growth in cars. We expect macroeconomic recovery and decline in petrol price to aid revival in small car sales. We expect utility vehicle sales to continue to
grow, led by new model launches. However, growth will be capped at 15-17 per cent on account of diesel price hikes. Long term growth prospects continue to remain healthy until 2017-18.
cars and UVs industry: CRISIL estimates installed capacities in the cars and UVs industry to grow by 760,000 units to 5.4 million units by 2012-13. While the top three carmakers are expected to contribute 35 per cent to the incremental capacity additions, the rest is expected to come from expansion by other players to cater to the domestic and export demand.
CV : Historically, the domestic CV industry has remained relatively concentrated with the top three players accounting for 87.8 per cent (in volume terms) as of 2009-10. As competition intensifies, in order to retain their market share, players are forming joint ventures with international companies for adopting new technology to manufacture upgraded trucks and buses.
Structure of CV industry
In 2000-01, Tata Motors and M&M were the main companies operating in the LCV (goods) segment. Tata Motors was the market leader with a share of 46 per cent, while M&M had a market share of 30 per cent. Tata Motors saw a substantial increase in market share in the LCV (goods) segment after it launched Tata Ace in 2005, which also ate into the sales of Tata's goods three-wheelers. In 2005-06, Tata Motors's share jumped to 61 per cent from 51 per cent in 2004-05. As of 2011-12, Tata Motors and M&M held 60 per cent and 31 per cent of the total market share, respectively. The LCV (goods) segment also includes players like Piaggio Vehicles, Force Motors and Swaraj Mazda, who altogether accounted for 5.6 per cent of the total sales as of 2011-12. Over the years, only M&M and Tata Motors have managed to retain a significant hold on the market. Piaggio Vehicles Ltd, a relatively new entrant, held a 2.6 per cent share as of 2011-12.
Similarly, despite the longstanding presence of players like Eicher Motors and Swaraj Mazda and the entry of new players like Asia Motor Works in the MHCV segment, Tata Motors continues to be the market leader, followed by Ashok Leyland. Between 2002-03 and 2007-08, both Tata Motors and Ashok Leyland together held a market share of 90 per cent, with the former accounting for 66 per cent. During the same period, Eicher increased its market share from 6.5 per cent to 9 per cent . Asia Motor Works, which entered the market in 2007-08, garnered a market share of around 1.3 per cent. Its share rose further to 3.1 per cent in 2011-12. On the contrary, between 2007-08 and 2011-12, Tata Motors maintained its market share, while Ashok Leyland lost some share to Eicher Motors and new entrants such as Asia Motor Works.