M&M tractor volumes surge 46% yoy in March 2018

Mahindra and Mahindra Ltd. Farm Equipment Sector (FES) reported 46% yoy growth in tractor sales in March 2018. FES sold 28,277 tractors in March 2018 against 19,337 tractors in March 2017. The numbers were far ahead of street estimates of 22,250 tractor sales for March 2018.

Domestic tractor sales for March 2018 were 26,958 vs. 17,973 in March 2017, a growth of 50% yoy while export sales for March 2018 were 1,319 vs. 1,364 units in March 2017, a decline of 3%.

For the full year (FY18), M&M FES sold 3,17,383 tractors against 2,62,992 tractors in FY17, a growth of 21% yoy. Domestic sales volumes for FY18 were up 22% yoy at 3,01,934 while export volumes were up 6% yoy at 15,449 units.

Tractor sales have been on an upswing for past several months due to two successive years of satisfactory monsoon, improved crop production, easy financing and growing use of tractors in non-agricultural sectors. The sector also benefits from low penetration of tractors. About 20% of tractors are used for non-agricultural use. The government’s thrust on roads and highways development as seen in Bharatmala project would also be positive for the higher tonnage tractor segment and the players therein.

The combined entity (standalone M&M + subsidiary MVML) derives revenue (Q3FY18) from farm equipment (35%), automotive segment (61%) and others (4%). It is market leader in tractors with 44% market share (Q3FY18). On account of new launches and normal monsoon, management expects tractor industry to grow at 15-18% in FY18E and 8% in FY19E. In the automotive business, M&M expects UV segment to perform well backed by three launches (MPV, compact SUV & Ssangyong Rexton) in FY19.

M&M plans to launch an affordable range of tractors in India (Trakstar). Tractor growth rate is expected to slow down to 8% in FY19E on high base of FY18. UV/LCV growth will be led by new launches, while MHCV business will breakeven in FY19E, as level of discounting reduces with increasing volumes. M&M has been at the forefront in EV space, recently committing Rs600cr towards EVs and EV components and plans an additional Rs900cr investment by CY20.