15 September, 2016 Total Views 746
Mumbai: Long-term measures to boost the agricultural sector that the government announced in this year’s budget will address the challenges facing rural India, says Rajesh Jejurikar, president and chief executive of farm equipment and two-wheeler businesses at tractor maker Mahindra and Mahindra Ltd. Edited excerpts from an interview:
How will the measures boost the agricultural sector and propel tractor demand?
This industry has been cyclical in nature and the CAGR (compound annual growth rate) for the last five to seven years has been 7% to 8%. The industry will have phases of low and high growth. It’s a bounce-back after two bad monsoons. Investment in irrigation projects is the best thing to do, but unlikely to have a short-term impact. We believe it’s the right approach—money should be spent creating long-term fundamental capability for the future instead of giving short-term sops.
The real improvement in demand will happen post October and November, partly due to the season and then, when the cash flow improves on the back of a good sowing that has happened this year and the improved harvesting which happens because of that. It’s only when the cash-flow comes in, the real situation on the ground sees a change.
The correlation between tractor sales and monsoons has often changed—in some years, it has weakened and in some, it has strengthened. What really determines sales?
One significant driving factor is what happens to the prices (minimum support prices) in the economy. Pricing, over and above a good rain, plays an important role in how the farmer sees his crop and investment in assets. It’s not just about a good rain but also, “am I going to make money with the good rain? Am I going to get good prices of the yield?” It is also linked to what they choose to cultivate at any given point of time.
Tractors have always outsold farm equipment in India. Do we see that changing as mechanization on farms improves?
The organized farm mechanization (excluding tractors) business is not more than Rs4,000 crore to Rs5,000 crore in India. Our guess is, the ratio of tractors to other equipment is 85:15 as the market in India for farm equipment is largely unorganized. As one goes forward, irrigation improves, greater leap from mechanization comes in, land consolidation, corporate and cooperative farming comes in, it will lead to greater mechanization, propelling demand for implements like rice transplanter, etc.
Is Mahindra looking at overseas acquisitions in the tractor and farm equipment business?
Both growth in farm mechanization and globalization are important parts of our strategy and we will take an inorganic route to scale up. You can’t define boundaries. We can be looking at either tractors or farm equipment.
How do you see the new tractor launch plans panning out and how has the response been to the Yuvo?
It has found an exceptionally good response and we are looking at building on that. We have a pipeline of new products that will come out next calendar year.
Your outlook on exports.
All I can say is, it is improving. You can see it in our August numbers. Africa, which was a problem last year and impacted most players, is opening up now.
What is driving growth—is it tractors with lower or higher horsepower?
We are seeing both ends growing. While the smaller horsepower tractors are growing because of being deployed for niche applications like orchards, horticulture, etc., higher power usage is going up because of farmers using implements such as rotavator. The higher horsepower is not always linked to the fact that a farmer has a bigger landholding.
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