Tractor companies cut output to reduce inventory

Is tractor industry's golden run over?

CHENNAI: Tractor sales fell 15% for the last three months forcing tractor companies to cut production.
While Mahindra & Mahindra has announced it will take between 5-13 no-production days across its various automobile and farm equipment sector plants in the first quarter of FY20, others including Escorts have also reduced production.

With the monsoon playing truant this year, the industry is looking at contraction in demand even if demand picks up with Kharif sowing. Tractor marketers say the severe drought in key markets like Maharashtra and Tamil Nadu --where demand has gone down by 20%-40% — will impact the overall market as well.
“Monsoon situation is a worry though in the last few days it has been picking up speed. The reservoir levels are very low and drought is acute. In Maharashtra, the market is down by 30-50% and in Tamil Nadu, it is down by 20-30% already.,” said Shenu Agarwal, chief executive, Agri Machinery & emerging business, Escorts Limited.

These markets together comprise just under 10% of the tractor industry and it is thanks to high-growth markets like Madhya Pradesh that the industry has been able to counter their sales drop. As far as dealer inventory goes, he said, Escorts has brought it down to between 21-25 days in the last few years.
“However in February and March some extra tractors were kept in our depot to cater to the April Navratra which turned out to be a damp squib,” said Agarwal. “As a result, our inventory was more than we would like to keep and in April, May, and June we cut production to reduce our depot inventory,” he added. Currently, the inventory levels for the tractor industry is around 5 weeks or 35 days.
“Based on the current trend, markets where demand has slowed we have optimized our stock but in markets, with positive demand, we have mobilized our resources and inventory," said Raman Mittal, ED, Sonalika Group.
“Things are not that bad right now (as in 2001-02) and most of the production correction has already been done,” said Agarwal.
Courtesy: Times of India