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Growth trend in tractors industry

Source: CRISIL Research, Industry

Factors affecting demand for tractors

Irrigation intensity and monsoonsLandholding pattern

Availability of creditMinimum support prices of food grainsCropping patternIncrease in cash crop production

Raw material continues to be the key cost parameter

Raw material is the key cost component of a tractor, accounting for 65-70 per cent of thetotal operating income. Other major costs include employee costs and selling expenses.

The trend in employee cost varies for different players across the industry, whereas the

selling cost, as a per cent of operating income, has increased over the past 5 years.

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14 states across 4 regions constitute bulk of demand for tractors

We have used the following structural parameters - tractor penetration, size of land

holdings, irrigation intensity, cropping intensity and commercial usage - to analyse demand for

tractors across 14 key states (ranked by sales volumes) in the 4 regions (North, South, East and

West). These states constitute over 95 per cent of the domestic tractor demand.

Structure of CV industry

CV industry is oligopolistic in nature

The domestic CV industry is relatively concentrated with the top three players accounting for 88

per cent (in volume terms) as of 2011-12. Tata Motors continues to dominate the CV industry

with nearly 60 per cent share, followed by Mahindra & Mahindra (M&M) with 18 per cent, and

Ashok Leyland with 10 per cent.

On the basis of usage, the industry can be broadly divided into two product segments, namely,

goods vehicles (trucks) and passenger vehicles (buses). These can be further segmented on

the basis of gross vehicle weight into light commercial vehicles (LCV) and medium and heavy

commercial vehicles (MHCV).

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 becapped at 15-17 per cent on account of diesel price hikes. Long term growth prospects continue

to remain healthy until 2017-18.

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.

Cars and UVs industry:

CRISIL estimates installed capacities in the cars and UVs industry to grow by 760,000 units to5.4 million units by 2012-13. While the top three carmakers are expected to contribute 35 per

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cent to the incremental capacity additions, the rest is expected to come from expansion by otherplayers to cater to the domestic and export demand.Domestic sales of cars and utility vehicles (UVs) are expected to grow moderately in 2012-13,growing by only 8-10 per cent, despite a low base in 2011-12. We expect demand to grow by 9-11 per cent in 2013-14 with revival in small car sales. Operating rates are likely to remain atsimilar levels while operating margins are expected to improve, led by decline in raw material

prices. Long term prospects to remain healthy.