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New Delhi, Dec 26 Ratings agency Icra Wednesday said Indian tractor demand is expected to grow at 10-12 per cent in the current fiscal but it will moderate to 4-5 per cent in 2019-20.
The industry has maintained a healthy year-on-year growth of 14.7 per cent during April-October 2018, Icra said in a statement.
"For the full fiscal, FY2019, the sector is expected to grow at 10-12 per cent," the ratings agency said, adding it has maintained a stable outlook for the sector for the year.
The tractor industry has registered a strong volume growth over last three years and Icra expects a CAGR (compound annual growth rate) of around 16 per cent over the period FY2016-FY2019.
"Growth is, however, likely to moderate in FY2020 (growth of 4-5 per cent)," it added.
Explaining rationale behind the forecast for next fiscal, Icra said concerns of developing El Nino conditions in the Pacific have emerged, which may influence performance of the south-west monsoon in the next fiscal – given the probability, the tractor volume growth may weaken further.
"Over the long term, it is expected that the industry will maintain a CAGR of 8-9%, with the long-term industry drivers remaining intact," Icra said.
For the ongoing fiscal, Icra pointed out steps taken by the government to enhance farmers' income as the primary growth divers.
"The Union government continues its initiatives towards enhancing farmers' incomes - in addition to schemes aimed at improving irrigation and insurance coverage, the MSP hikes for the current kharif season have been better than previous years," it said.
The government's thrust on rural spending, infrastructure creation and irrigation spending is also expected to provide support to rural incomes over the short to medium term.
"Icra expects the industry to continue its double-digit growth despite somewhat weak and uneven monsoon precipitation, impacting the kharif crop," the ratings agency said.
However, a major deficit in the post monsoon rainfall has led to a weakening of the reservoir levels across regions and could impact the rabi sowing levels, it added.
In terms of profitability of tractor manufacturers, Icra said it remains linked to industry demand -- expanding during industry up-cycle and contracting during downturns.
"Though the operating margins for the industry peaked in FY2018, benefitting from economies of scale on expanding volumes; a hardening in raw material prices is expected to moderate the same over the near term," it said.
Icra said the financial profile of most OEMs (original equipment manufacturers) remained healthy, even in periods of downturn in the industry but capacity utilisation levels in the industry remains at moderate levels.
"In the absence of any significant capital expenditure plans, the credit profile of the OEMs is expected to remain healthy," it said.