Healthy monsoon rains to limit tractor volume fall in FY21

Ratings agency Crisil expects a well-distributed and a normal monsoon to limit the impact of the COVID-19 pandemic on tractor sales volume this fiscal.

According to the rating agency, despite a 37 per cent year-on-year decline in April and May combined, tractor volume will likely be only one per cent below last fiscal’s level.

This will be in sharp contrast to a double-digit decline expected for the rest of the automobile industry.

“Lower raw material costs and strong balance sheets bode stable credit outlook for tractor makers this fiscal,” the agency said in a statement.

As per the forecast by the India Meteorological Department, the south-west monsoon to be at 102 per cent of the long period average (LPA) in calendar 2020.

“Crucially, it sees rains well-distributed at 96-107 per cent of the LPA in all the four regions. The monsoon’s approach so far has been timely with rains 21 per cent above normal in June to date,” the statement said.

“The forecast for July and August — crucial months for kharif crop — is also encouraging at 103 per cent and 97 per cent, respectively, over LPA.”

Besides, the report cited that favourable distribution of rains can even offset the adverse impact of a below-normal monsoon, such as in fiscal 2019 when domestic tractor sales volume grew a strong eight per cent on a high base and despite monsoon being nine per cent below the LPA.

In fiscal 2020, on the other hand, poor month-wise distribution and large state-wise variation in rainfall — despite an above average monsoon season overall — contributed partly to a 10 per cent decline in tractor sales volume.

Additionally, agriculture will be supported by high reservoir levels, seen at a massive 94 per cent higher than last year and 71 per cent above the average of the past decade.

“Apart from overall adequacy, monsoon needs to be spatially well-distributed by geography and timeliness to propel farm incomes and stoke demand for tractors. The IMD’s forecast is very encouraging for tractor volumes this fiscal,” said Manish Gupta, Senior Director, Crisil Ratings.