india's tractors industry 2014

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TABLE OF CONENTS

RISK SCORE ................................................................................................................................................................... 5

EXECUTIVE SUMMARY .............................................................................................................................................. 6

OVERVIEW ..................................................................................................................................................................... 7

MACROECONOMIC SCENARIO ................................................................................................................................ 8

Glance at Key Economic Indicator ........................................................................................................................................8

Tradeoff between Growth & Inflation ............................................................................................................................... 12

Currency Movement ................................................................................................................................................................. 13

REGULATORY SCENARIO ...................................................................................................................................... 14

DEMAND SUPPLY SCENARIO................................................................................................................................ 15

Current Scenario ....................................................................................................................................................................... 15

Demand Drivers ......................................................................................................................................................................... 16

Exports .......................................................................................................................................................................................... 19

Imports .......................................................................................................................................................................................... 20

New Capacity Addition ........................................................................................................................................................... 21

Future Growth Prospect ......................................................................................................................................................... 23

COMPETITIVE SCENARIO ...................................................................................................................................... 24

FINANCIAL PERFORMANCE .................................................................................................................................. 26

Sales Growth ............................................................................................................................................................................... 26

Operating Cost ........................................................................................................................................................................... 27

Profitability ................................................................................................................................................................................. 28



Ratio Analysis ............................................................................................................................................................................. 29

Debt Equity Ratio ................................................................................................................................................................. 29

Interest Coverage Ratio ..................................................................................................................................................... 30

Other Key Ratios ................................................................................................................................................................... 31



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RISK SCORE

Higer level of mechanization is expected to happen in Indian agriculture as farmers explores ways to increase effiicency.

Low availability of farm labor due to rural urban migration too would increase usage of tractors in agriculture sector.

Demand drop in the US - India's largest export market - has impacted tractor exports from the country. Since exports form an integral part of the sector, this slowdown has impacted the entire tractor sector.

Any deficit in monsoons would impact crop sowing pattern in the country, in turn impacting tractor demand



EXECUTIVE SUMMARY

India is the largest tractor manufacturer in the world accounting for close to one-third of

global production. The country is also one of the largest exporters of tractors, generating

close to INR 49 Bn through exports in FY 2014. Today Indian tractor manufacturers are

capable of producing wide range of tractors with capacities ranging from 20 HP to 90 HP.

Tractor penetration in the country is estimated to be close to 20 tractors per 1,000 hectares

of agricultural land, which is on par with global standards. Tractor usage in agriculture in

India initially picked up due to the governments effort on farm mechanization as part of

Green Revolution during 1970s. Supporting policy measures towards this initiative helped

in initial adoption of tractors.

Annual tractor sales in the country are estimated to have reached 700,000 units by the

fiscal year 2014, of which exports form 9%. Domestic sales of tractors reached close to

633,000 units by FY 2014, increasing by 20% over previous fiscal. More than 50% of

tractors sold in India are concentrated in the five states of Uttar Pradesh, Maharashtra,

Gujarat, Rajasthan, and Madhya Pradesh.

Demand for tractors is directly tied to the growth in agriculture sector. General increase in

crop production over the past few years due to scientific advances in agricultural practices

and increasing mechanization in agriculture has resulted in increased usage of tractors.

Additional demand rose from goods transportation sector where it is mostly used for short

distance haulage as well as from export markets.

Indian tractor sector is consolidated and close to 90% of total domestic sales is

concentrated among top five players. Mahindra & Mahindra is the clear leader in Indian

tractor sector, accounting for close to 42% of domestic sales. Tractors and Farm

Equipments Ltd, Escorts Ltd, International Tractors Ltd, Punjab Tractors and Eicher are

few of the key domestic manufacturers. Global tractor manufacturers like John Deere

Equipments Ltd and New Holland Fiat (India) Pvt Ltd too operate in Indian tractor sector.



OVERVIEW

India is the largest tractor market in the world and tractor production in the country account for

close to one-third of total global production. During earlier decades after independence, Indian

tractor sector was dominated by imports as indigenous manufacturing base was weak. However

promotion of indigenous manufacturing through technology transfer agreement with global tractor

manufacturers during 1960s helped in the growth of tractor manufacturing in the country. Since

then, private companies in the sector have developed indigenous technologies and perfected

tractor manufacturing. On the back of this strong manufacturing base India has become of the

largest exporters of tractors in the world.

Today Indian tractor manufacturers are capable of producing wide range of tractors with

capacities ranging from 20 HP to 90 HP. Based on the horsepower (HP) capacity the sector is

categorized into five classes: less than 20 HP, 21 30 HP, 31 40HP, 41-50 HP and above 50

HP. Tractors in the segment 31 40 HP form the largest among all five segments accounting for

close to 40% of total market

Tractor demand has inexplicably been linked to agricultural production - primary demand driver

and to a lesser extends to short distance haulage operations. Renting out of tractors to farmers as

well as for haulage is common in the country, which has reduced the useful lifecycle of the

equipment from 10 - 12 years to 8 10 years. Drop in lifecycle would speed up the rate of

replacement, leading to higher demand.

Tractor penetration in the country is on par with global standards, mostly due to the thrust

provided for farm mechanization in Green Revolution. Supportive government polices to promote

mechanization too has helped in increased acceptance of tractors in agriculture sector. Usage of

tractors in the country varies from region to region. Usage is highest in the states of Uttar

Pradesh, Maharashtra, Gujarat, and Punjab while lowest in North Eastern States where the terrain

is primarily hilly.



MACROECONOMIC SCENARIO

Glance at Key Economic Indicator

Indian economy continued to report below 5% growth in FY 2014. At global level, economic

growth performance in major economies continued to play a decisive role in deciding the growth

fortunes of developing countries including India. Indian economic performance was severely

impacted by the sustained weakness in USA, Euro Zone countries and China that are also Indias

major trading partners and source of foreign capital inflows. In CY 2013, world economic growth

slide further to 3% as compared to 3.1% in previous year while US GDP growth slowed down to

1.88% as compared to 2.8% in in previous year and Euro Zone as a whole reported a growth of

about 0.2%. Annual GDP growth of world fastest growing market i.e. China too slowed down from

the level of 10.4% in 2010 to 7.7% in 2013.

At domestic level, Indias investment and industrial growth prospects remained fragile and even

the services sector remained weak. Even though the Indian government took several steps to

arrest the volatility in foreign exchange rate and narrow down the current account deficit in FY

2014 but the growth momentum of the domestic economy faced unrelenting challenges.

Persistence of high consumer price inflation and interest rates, weakening performance of

services and industrial sector has let down all expectation of economic revival in the past fiscal.

Additionally, regulatory hurdles, administrative bureaucracy, and policy delay pertaining to land

acquisition process, obtaining license, and environmental clearance were further impediments to

growth. These factors dampened the countrys position at global level as well due to which, on

ease of doing business Index India ranks 134th

amongst 184 countries and lowest amongst

BRICs peers. Lack of consensus on major economic reform and policy paralysis led to a declining

new-investment spending for the fourth consecutive year in row since FY 2011.



Source: CSO & D&B Forecast, (PE is Provisional Estimates)

As per provisional estimates on GDP number released on May 30th 2014, Indias annual GDP

growth reported a marginal incremental growth of 0.3% over the previous year and grew at about

4.74% in FY 2014 as compared to 4.47% in FY 2013. Economic activity continued to exhibit

stagnancy on back of slowing industrial sector. Industrial sector growth as measured by the Index

of Industrial Production (IIP), registered a y-o-y decline of 0.1% during FY 2014.

As seen in the below chart, services sector registered maximum growth over the period FY 2010-

14, followed by the agriculture sector and industrial sector.

8.59%

8.91%

6.69%

4.47% 4.74%5.5%

5.28%

8.23%

2.88%

1.10%

-0.1%

2.7%

FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 PE FY 2015F

Macro Economic Indicator

GDP Growth Rate IIP Growth Rate



Source: CMIE Outlook, RE is Revised Estimated, PE is Provisional Estimate

In FY 2014, services sectors contribution towards GDP stood at 60.1%, followed by industry

(26.1%) and agriculture (13.9%). Also, the share of services to economic output is increasing,

while that of agriculture and industry segment declined over the period FY 2012-13.

The annual growth rate of services sector, industry and agriculture sector stood at 7%, 0.35% and

4.17%, in FY 2014 as compared to 6.96% 0.96% and 1.42% respectively, registered in previous

fiscal.

6,6107,178 7,538

7,645 8,005

FY 2010 FY 2011 FY 2012 FY 2013 RE FY 2014 PE

Agriculture (INR Bn)

12,769

13,733

14,807 14,949 15,002

FY 2010 FY 2011 FY 2012 FY 2013 RE FY 2014 PE

Industry (INR Bn)

25,78228,274

30,13032,227

34,482

FY 2010 FY 2011 FY 2012 FY 2013 RE FY 2014 PE

Services (INR Bn)

4.91%4.11%

7.54%

6.19%

Agriculture Industry Services Over all GDP

CAGR (FY 2010-14)

GDP (Factor Cost, Constant 2004-05 Prices) by Economic Activity



Source: CMIE Outlook

From quarterly trend, growth in agriculture sector expanded from sharply to 6.3% on sequential Q-

o-Q basis in Q4 FY 2014, while service sector economic output slowed down to 6.4% in last

quarter of FY 2014 from 7.2% in previous sequential quarter. Industry segment continued to report

a decline in Q4 FY 2014 on yearly q-o-q basis on the back of contracting economic output from

mining and quarrying and manufacturing segment in all four quarters (excluding Q2:FY 2014).

D&B expects economic growth to recover in FY 2015, albeit at moderate rate and grow at about

5.5%. With formation of a new and stable government, economic growth is likely to get impetus

from improved policy environment, early implementation of long pending reforms and revival of

large stalled projects.

1.8% 1.8%

0.8%1.6%

4.0%

5.0%

3.7%

6.3%

0.3%-0.4%

1.7%2.1%

-0.4%

2.6%

-0.4% -0.2%

7.2%7.6%

6.9%6.3%

7.2%

6.3%7.2%

6.4%Q

1:

FY 2

01

3

Q2

: FY

20

13

Q3

: FY

20

13

Q4

: FY

20

13

Q1

: FY

20

14

Q2

: FY

20

14

Q3

: FY

20

14

Q4

: FY

20

14

Yearly Q-o-Q change in Sectoral GDP (%)

Agricuture Industry Services



Tradeoff between Growth & Inflation

Source: Office of the Economic Advisor; RBI

Monetary authorities kept the interest rate unchanged during April 2012-Dec 2012 as the

inflationary pressure continued to loom over the economy that impacted the fresh investments and

economic growth in FY 2013. In order to revive investment and push liquidity in the economy, RBI

reduced the repo rate thrice during Jan 2013 till May 2013 by 25 basis point each time. However,

with revival of inflationary pressure the repo rate was hiked by 25 bps thrice since September

2013. The latest hike of 25 bps in repo rate was made Jan 28, 2014. Rise in interest rates has

adversely impacted the overall GDP growth on the back of increasing project financing cost for

corporate and deterring the demand growth. India Inc. has been demanding a rate cut to spur

investment and promote growth as the monthly WPI index which measure inflation has shown

some decline trend since November 2013. However, RBI kept the policy rate unchanged in its

latest monetary policy review in August 5th 2014 against the industry expectation. Repo rate

currently stands at 8%.

CRR another monetary tool used by RBI to regulate money supply has been reduced four times

(each time by 25 basis point) since March 2012 in order to infuse the primary liquidity in banking

system and supports the GDP growth. With last 25 basis point cut on 29th Jan 2013, the CRR

currently stands at 4.0% and CRR too remained unchanged in latest policy review.



Currency Movement

Indian currency entered into a prolonged period of depreciation by the middle of fiscal 2012 which

continued well into end of FY 2014. During this period rupee touched record lows. After a

prolonged period of depreciation the US dollar stabilized against Indian rupee in the range of INR

59 60. India being a major exporter of tractors this weakness in rupee has helped in shoring up

export revenue. However pull back in rupee to more strong levels of INR 59 60 has limited the

export earnings.

Source: Ministry of Finance, Govt of India



REGULATORY SCENARIO

Tractor usage in agriculture in India initially picked up due to governments effort on farm

mechanization to increase efficiency and productivity, as part of Green Revolution during 1970s.

Supporting policy measures towards this initiative helped in initial adoption of tractors. Increased

productivity due to a combination of better seeds, usage of fertilizers as well as higher levels of

mechanization encouraged farmers to increase tractor usage. Removal of production restrictions

during the economic reforms of 1991 helped tractor manufacturing, as it helped a host of other

manufacturing sectors. Since then domestic production has picked up and has grown at a healthy

rate.

India have signed trade concession agreements with Japan, by terms of which the tariff on import

of select products (covered under the agreement) will be gradually reduced over a fixed time

period as defined in the agreement. Tractors are covered under the agreement, which resulted in

lower tariff on import of tractors from Japan. Lower tariff helped in reducing the landed cost of

tractors imported from Japan, posing stiff challenge to domestic players.

In addition India has also signed Trade in Goods Agreement with countries in ASEAN block. The

agreement is based on Comprehensive Economic Cooperation framework. As per the terms of

this agreement, countries party to this agreement would open up in a phased manner, their

market for goods and commodities covered under the agreement to other signatories of the

agreement. Opening up of the market include measures like lowering trade barriers by reducing

tariffs and other costs. This agreement covers import of certain types of tractors from Thailand,

leading to a surge in tractor imports from that country.



DEMAND SUPPLY SCENARIO

Mechanization of Indian agriculture during Green Revolution and start of indigenous production

resulted in Indian tractor industry becoming one of the largest in the world. Lower production cost

coupled with international quality standards helped tractors gain acceptance in global markets.

Soon India became one of the largest exporters of tractors. Tractor penetration in the country is

estimated to be close to 20 tractors per 1,000 hectares of agricultural land, which is on par with

global standards.

Current Scenario

Annual tractor sales in the country are estimated to have reached 700,000 units by the fiscal year

2014, of which exports form 9%. Total tractor sales increased by a CAGR of 7% during the period

FY 2010-14. While domestic sales increased by a CAGR of 12% during the same period but

exports declined by 17%. Drop in exports was due to lower demand from the US, which is the

largest export market for Indian tractor manufacturers.

Domestic sales of tractors reached close to 633,000 units by FY 2014, increasing by 20% over

previous fiscal. Most number of tractors was sold in the state of Uttar Pradesh, accounting for

16% of total sales in the country. More than 50% of tractors sold in India are concentrated in the

five states of Uttar Pradesh, Maharashtra, Gujarat, Rajasthan and Madhya Pradesh.

Source: D&B Research



Demand Drivers

Demand for tractors is directly tied to the growth in agriculture sector. General increase in crop

production over the past few years due to scientific advances in agricultural practices and

increasing mechanization in agriculture has resulted in increased usage of tractors. Additional

demand rose from goods transportation sector where it is mostly used for short distance haulage

as well as from export markets.



KEY DEMAND DRIVERS

Mechanization in

Agriculture

Farm mechanization was one of the features of green revolution

which was implemented in 1960s to increase crop production.

Initially capital intensive farm mechanization was supported by

government policies. However increased farm productivity brought

about by Green Revolution encouraged farmers to actively adopt

all features that defined Green Revolution, including usage of high

yield seeds, increase usage of fertilizers as well as usage of

agricultural machinery.

Consequently usage of tractors in agriculture went up. In later

years pick up indigenous production which reduced the cost

compared to imports along with liberal farm credit helped in

wider adoption of all types of farm machinery, including tractors.

Increased usage for

haulage

Usage of tractors for transporting goods over short distance has

picked up in sectors like construction and infrastructure. It is also

used for transporting agricultural goods from farms to warehouses

/ agriculture markets. Currently usage for haulage forms the

secondary demand for tractors in the country.

Drop in availability of

farm labor

Urbanization and growth in industrialization has led to migration of

people from villages to towns & manufacturing hubs, leading to

drop in availability of farm labor. This has forced farmers to relay

more on agriculture machinery to substitute farm labor.

Rural urban migration pattern is set to continue as more jobs are

being created in towns and manufacturing hubs. Consequently

usage of tractors along with other agriculture machinery would

continue to grow.



Export Demand

From being a net importer of tractors, Indian tractor industry has

developed to become a net exporter. Indian made tractors are

currently exported to some of the largest markets like the US. By

FY 2011 approximately 137,000 tractors were exported from

India.

However tractor exports to the US Indias largest export market

fell after FY 2010 as recessionary situation led to drop in

demand.



Exports

Tractor exports from the country gained traction by FY 2000 and since then grew by ~56% per

annum in the next ten years (till FY 2010). Annual volume of exports increased from 2,700 units to

137,000 units during this period. Approximately 50% of tractor exports were headed towards the

US market, one of three largest tractor market in the world (along with India and China). By FY

2010 tractor exports were generating close to INR 15 Bn per annum. Tractor exports reached its

peak in FY 2010 with exports to the US alone accounting for 67%.

However demand fall in the US due to deteriorating economic condition and impacted tractor

exports badly. On the face of lower demand annual tractor exports to the US came down from

91,500 units in FY 2010 to 16,700 units in FY 2011, a drop of 82%. Consequently overall tractor

exports from the country declined by 59%. Although there was a surge in demand the following

year, it was due to sudden spike in demand from Sri Lanka but subsided to normal levels in the

following years. By FY 2014 annual export of tractors have fallen to 65,600 units, however export

revenue continued to increase due to the weakness in rupee which hit record low levels during FY

2013.

Source: CMIE Industry Outlook

Volume of exports to the US accounted for 21% of total exports in FY 2014, down from 67% in FY

2010 as demand fell. Algeria, Turkey, and Nepal were the next three major export markets

targeted by Indian tractor manufacturers. Together these three countries accounted for 32% of



total exports. Inability of Indian tractor manufacturers to develop alternate export markets (other

than the US) for their products and high reliance on the US led to the current scenario. Value of

tractors exported from the country reached INR 49 Bn in FY 2013. Further, exporter of cheaper

used tractors to South East Asian countries from developed countries created competition for

Indian manufactures who were exploring these South East Asian markets.

Imports

During 1970s India was completely reliant on imports for tractors; however start of indigenous

production and capacity building by private sector players led to a drop in imports. However over

the past couple of years tractor imports to the country has been increasing, with Japan emerging

as the largest exporter. Indian government has accorded preferential treatment to tractor imports

from Japan which includes reduction in import duty.

However few of the components required for tractor manufacturing needs to be imported, import

of these goods levy a higher duty when compared to duty levied on final product (tractor).This has

created an inverted duty scenario where Indian made tractors have become expensive than

tractors imported from Japan. This price differentiation led to higher demand for Japanese imports

leading to an increase in volume of imports from that country. General increase in the volume of

imports along with a weak rupee resulted in tractor import bill crossing the INR one billion mark.

Source: CMIE Industry Outlook



New Capacity Addition

New investments into the sector have declined in the past couple of years due to slow growth in

domestic demand and general credit squeeze prevailing in the corporate sector. Average annual

investment made in the sector declined from INR 20 Bn INR 3 Bn in FY 2013, while no new

investment was made in latest fiscal (FY 2014). Currently there are five projects under various

stages of implementation in the tractor sector and the combined cost of those projects is

estimated to be close to INR 12.3 Bn.

Source: CMIE Prowess, D&B Research

Major projects currently under implementation

Company Project Capacity Added

(units)

Expected

Completion

Mahindra & Mahindra

Ltd

Nagpur Plant Tractors

Manufacturing Capacity

Expansion Project

15,000 March 2015

New Holland Fiat Noida Tractor Expansion 24,000 December 2015



(India) Pvt. Ltd. Project

Tractors & Farm

Equipment Ltd.

Madurai Tractors

Manufacturing Plant Project

60,000 December 2015

Source: CMIE Capex



Future Growth Prospect

Increased focus on improving crop productivity to feed a growing population would see changes in

Indian agriculture sector, including higher levels of mechanization. Further decline in availability of

farm labor due to migration to urban centers too would play a significant role in higher level of

mechanization in agriculture. Consequently demand for tractors would remain strong in the

coming years. Apart from long term demand for agriculture, demand would also increase from

haulage segment with the pick-up in mining and construction activity. However monsoon deficit in

FY 2014 would impact tractor sales in FY 2015. Average rainfall in FY 2014 has impacted sowing

leading to lower demand for tractors.

Consequently domestic sales growth would be muted in FY 2015, but is expected to pick up in FY

2016. However growth in FY 2016 hinges on monsoons and a weak monsoon would impact

growth. Going forward domestic tractor sales are expected to reach ~746,000 units by FY 2016.

Source: D&B Research

Exports which accounted for a significant percentage of sales till FY 2010 is expected to rebound

once demand for the US, Indias key export market picks up. However this demand pick up would

be gradual as US is still in the midst of economic slowdown with growth appearing to be slower

than anticipated.



COMPETITIVE SCENARIO

Indian tractor sector is consolidated and close to 90% of total domestic sales is concentrated

among top five players. Tractor manufacturing is characterized by the need for upfront capital

investment, well developed dealer network for maximum penetration in domestic market and

adherence to quality standards so as to meet export quality. These factors act as entry barriers,

preventing entry of smaller players into the sector. Mahindra & Mahindra is the clear leader in

Indian tractor sector, accounting for close to 42% of domestic sales.

Key Tractor Manufacturers

Mahindra &

Mahindra Ltd

(Farm Equipment

Division)

Mahindra & Mahindra is the largest tractor company in the world (by volume

sales). The company sells close 200,000 220,000 tractors per annum and till

date have sold close to 2 Mn tractors. Mahindra & Mahindra is also the largest

exporter of tractors, and also operates manufacturing units in the US and China.

The company sells Swaraj brand of tractors, one of the most popular tractor

brands in the country. Other tractor brands sold by the company include Arjun,

Bhoomiputra, Sarpanch, Shaan and Yuvraj.

Escorts Ltd

(Escorts Agri

Machinery)

Escorts Agri Machinery division manufactures and sells tractors, crop solutions

and engines & gensets. Apart from agricultural usage the companys tractor

portfolio also include tractors exclusively meant for haulage.

Tractors and

Farm

Equipments Ltd

(TAFE)

TAFE is the third largest tractor manufacturer in the world and second largest in

India. The Company sells 150,000 tractors per annum and is estimated to

account for 25% of total market. TAFE is incorporated in Chennai and has been

operational since 1960. TAFE manufactures tractors in the range of 20 HP to 60

HP. Apart from tractors the company also manufactures farm machinery, diesel

engines, batteries and transmission components.

International

Tractors Ltd

International Tractors Ltd established in 1969 is the makers of Sonalika brand of

tractors and farm equipments. The company manufactures tractors in segments

ranging from 20 HP to 90 HP.



VST Tillers

Tractors Ltd

(VTTL)

The Company was incorporated in 1967 in Bangalore and started commercial

production of power tillers and diesel engines in 1970 in collaboration with

Mitsubishi Heavy Industries and Mitsubishi Corporation, Japan. The company

started producing tractors from 1984 in collaboration with Mitsubishi Agricultural

Machinery Company Ltd, Japan. The company currently manufactures power

tillers, tractors, paddy transplanters, and diesel engines. Tractor brands

manufactured include VST Mitsubishi Shakti and Euro Trac

Mahindra Gujarat

Tractors Ltd

The Company - earlier known as Gujarat Tractor Corporation Limited was a

public sector enterprise which became a part of USD 16 Bn Mahindra Group in

1999 as part for the disinvestment drive of Gujarat Government. Name of the

company was changed to Mahindra Gujarat Tractors Ltd in 2000. The company

manufacture Shaktmaan and Hindustan brand of tractors.

HMT Tractors Ltd

HMT Tractors, incorporated in 1971 is the tractor business division of HMT

Group. The company initially started manufacturing tractors in collaboration with

Motokov which was based in erstwhile Czekoslovakia. The company

manufactures HMT brand of tractors

Financial Performance of few Companies in the Segment (FY 2014)

Company Sales % Change over

previous fiscal

Operating Profit & % Change

over previous fiscal

VST Tillers Tractors Ltd INR 6.2 Bn ( 29.6%) INR 0.8 Bn ( 70.8%)

Mahindra Gujarat Tractors Ltd INR 1.29 Bn ( 0.2%) INR 0.05 Bn ( 4.9%)

H M T Ltd INR 0.81 Bn ( 20.9%) INR 0.9 Bn

Note: Financials of Escorts Ltd largest company whose financials are publically available is not considered

as the FY 2014 results is of 18 month period, due to the accounting period change undertaken by the

company. Consequently comparison of financials between FY 2014 (18 month period) and FY 2012

(previous fiscal results, 12 month period) would yield skewed results. Farm equipment division of Mahindra &

Mahindra is part of Mahindra Group which does not public segment wise financial results. Financial

information of TAFE and International Tractors are not available as they are not publically listed.



FINANCIAL PERFORMANCE

Sales Growth

Drop in export demand impacted the tractor sector impacted the sales in FY 2013. Volume of

tractors exporter dropped by ~30% during FY 2012-13 leading to lower sales growth in the sector.

Strong domestic sales prevented de growth in FY 2013.

Source: CMIE Prowess, D&B Research, Sample -3 Companies



Operating Cost

Operating Cost Margins

Year Raw Material Power & Fuel Salary & Wage SGA Expenses Interest Expense

FY 2010 63.6% 1.1% 9.5% 6.2% 3.3%

FY 2011 64.7% 1.1% 9.5% 6.7% 3.3%

FY 2012 68.4% 1.0% 9.2% 5.8% 3.7%

FY 2013 66.8% 1.0% 9.5% 5.3% 3.4%

Source: CMIE Prowess, D&B Research, Sample 4 Companies

Steel and pig iron which are used to manufacture parts of tractors account for 75% - 80% of

raw material cost. For the past 4 5 years prices of both pig iron and steel has been volatile and

this volatility has spilled over to the raw material cost incurred by tractor manufactures.

Tractor manufacturing continues to be labor intensive as the level of mechanization involved in

manufacturing is yet to catch up. This has kept employee compensation expense high, accounting

for close to 10% of total revenue. Interest expense which accounted for ~3.3% of total revenue in

FY 2010 came down to 1.8% in FY 2014 primarily due to paring down of debt by few companies

in the sample.



Profitability

Profitability margin in the sector has steadily declined (as seen in the sample considered) during

the period FY 2010-13 due to slowdown in sales as demand from end consuming sector dropped.

Although raw material cost largest operating cost moderated during the period other major

expense heads like power & fuel cost as well as salary & wage expense increased.




Ratio Analysis

Debt Equity Ratio

There was a hike in borrowing by one of the companies in the sample in FY 2012 to fund its

capacity expansion plans. Overall growth in debt as a result of this led to a surge in debt equity

ratio in FY 2012. However repayment of debt by one of the companies in the sample helped in

bringing down the debt component in the sample. This helped in reducing the debt-equity ratio

from its FY 2012 levels.




Interest Coverage Ratio

In the period FY 2013-14 revenue of one of the companies in the sample surged on the back of

extra ordinary income accrued during the course of FY 2014. Resulting growth in operating profit

of the company led to an overall increase in operating profit in the sample. On the other hand debt

repayment exercise undertaken by a constituent in the sample helped in reducing the interest.

Consequently interest coverage ratio surged in FY 2014.




Other Key Ratios

Sample: 4 Companies (Source: CMIE Prowess)

Time Period: FY 2012,13 and 14

Ratios Average Value

Gross Margin 22.6%

Net Margin 3.3%

Current Ratio 1.24

Quick Ratio 0.73

Account Receivables Days 38

Inventory Days 44

Account Payable Days 45

RONW 10.3%

ROA 10.3%

ROCE 15.4%

Long Debt-Equity 0.86

Net worth to Total Liabilities 35.9%

Interest Coverage Ratio 3.44

Fixed Asset Turnover 3.59

Asset Turnover 1.13

Inventory Turnover (83.98)

Fixed Assets to Net worth 9.17

Sales to Capital Employed 0.88



Registered Office

ICC Chambers, Saki Vihar Road, Powai, Mumbai - 400 072 Tel: +91-22 2857 4190/92/94, 6676 5555 Fax: +91-22-2857 2060 Email: [email protected] URL: www.dnb.com

New Delhi Office

FB-01,NSIC STP Centre, NSIC Bhawan, Okhla Industrial Estate, New Delhi 110 020 Tel: +91-11-4149 7900/01/ Fax: +91-11-4149 7902 Email: [email protected]

Chennai

New no: 28, Old no: 195 1

st Floor, North Usman Road

T,Nagar Chennai 600 017 Tel: +91-44- 2814 2265/ 4289 7602/ 2814 2275 Fax: +91-44-2814 2285 Email: [email protected]

Bangalore

# 7/2 Gajanana Towers, 1

st Floor, Anna Swamy Mudaliar Street

Opposite Ulsoor Lake, Bangalore 560042 Tel:+91-080-3316 / 3500 Fax: +91-080-3316 3540 Email: [email protected]

Kolkata

166 B, S.P. Mukherjee Road, Merlin Links,Unit 3E, 3rd Floor, Kolkata 700 026 Tel: +91-33-24650204 Fax: +91-33-2465 0205 Email: [email protected]

Hyderabad

504, 5th

Floor Babukhans Millennium Center 6-3-1099/1100, Somajiguda Hyderabad 500 004 Tel: +91-40-6662 4102 / 6651 4102 Fax: +91-40-6661 9358 Email:[email protected]

Ahmedabad

001, Samruddhi, Opp.Old High Court, Income Tax, Ashram Road, Ahmedabad 380 014 Tel: +91-079-27540558 / 27540559 Fax: +91-079-27540560 Email: [email protected]



Tel:+91-080-3316mailto:[email protected]

india's tractors industry 2014

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