What’s getting M&M excited about rural sentiment despite a dip in tractor sales

A definite turnaround is seen in consumer sentiment in rural markets where demand has been under pressure the last couple of years. Any indication to the contrary could be a transitory blip. M&M may have sold fewer tractors in April but it stays upbeat about rural recovery. The rural sentiment in India has stayed positive and will continue to hold up, Ramesh Iyer, Mahindra Finance MD & VC, said in a recent interview with ET NOW.

Iyer said tractors in rural parts of India are a need-based product and have been performing “extremely well”. Furthermore, the positive sentiment in the rural markets is likely to drive growth for the farm equipment sector (including tractors) for the next two or three years, he added.

“I think clearly we have seen growth across the country without exception in every state and almost every product which is why cumulatively we said that the sentiments are very, very positive. We are not seeing any pressure in any segment, at least at this stage, and we continue to believe that they would all do well,” said Iyer.

Iyer’s optimism for the sector can be attributed to deployment of almost all vehicles (including tractors) to their full capacity. In a country where more than half of the population is engaged in the agricultural sector, the tractors (that Mahindra finances) act as a livelihood product for them. In addition, the harvesting and procurement of crops are in full swing, keeping the sentiment upbeat in the rural markets.

“Wheat procurement is very strong and has already crossed last year’s level. High reservoir levels will aid in Kharif sowing and good cash flow from Rabi crop will further add to liquidity in the hands of the farmers. In the exports market, we have sold 1,007 tractors,” said Hemant Sikka, President – Farm Equipment Sector, Mahindra & Mahindra Ltd.

Iyer also stated that when business does well the collection is bound to do well because it is an overall reflection of the improving cash flow. “Because when somebody buys a vehicle, they do bring in 25% margin money which means they are able to bring in Rs 2-Rs 3 lakh upfront that is nothing but a clear outcome in the visibility of the improving cash flow in the rural market,” he said.

Explaining the disappointing numbers

Domestic tractor sales for April in India have remained low as compared to the corresponding period of the last fiscal. The data shared by Federation of Automobile Dealers Associations of India (FADA) showed that tractors grew merely 4% while the other categories registered a double-digit growth for the month.

Mahindra’s domestic tractor sales in April 2023 stood at 35,398 units, as against 39,405 units during April 2022.

Total tractor sales (Domestic + Exports) during April 2023 were at 36,405 units, as against 40,939 units for the same period last year. Exports for the month stood at 1,007 units.

“We have sold 35,398 tractors in the domestic market during April ’23. De-growth comes due to the preponement of high-demand generating festivals of Navratri and Gudi Padwa in March this year compared to April last year,” said Sikka, while commenting on the performance.

However, industry body FADA has warned of weather playing spoilsport. The possibility of an El Niño weather pattern later this year could lead to poor monsoons, hampering rural India’s growth potential, it said. The end of March saw unseasonable rains and hailstorms in north and central India which have destroyed key crops and delayed harvesting, which could have a negative impact on rural vehicle sales, it said.