Sonalika expects a revival in the domestic market from next fiscal with a CAGR of 9% over the next five years, said Raman Mittal, executive director, in an interview with FE’s R Ravichandran. Excerpts:
How is the overall demand for tractors in the country?
Currently, the industry has been facing a degrowth for over a year. In addition to weak farm sentiments, a slow pick-up in infrastructure activities continues to constrain demand arising for haulage purposes.
After a decline of 13% during FY15 owing to a host of unfavorable factors, the domestic tractor industry volumes have continued to be under pressure. Although the domestic demand has remained weak, a recovery in demand from the US, coupled with increasing exports to other destinations such as Turkey and Algeria, have aided volume expansion in exports. We also expect the domestic volumes to remain weak during FY16 at about 7-8% and any recovery in volumes is only likely to happen over the medium term. In the long term, the tractor industry is expected to maintain a volume CAGR of 8-9% in the next five years, as long-term industry drivers remain favorable.
How is Sonalika beating this slowdown?
Sonalika ITL has been the fastest-growing company in India and has been on a robust growth path in the last four years. We have witnessed almost 50% growth in market share from 8% to 12% in the last four years.
Currently, Sonalika ITL is the No. 3 tractor manufacturer in India. The core focus would be 40 HP and above. We have also recently launched products in the 30-HP segment.
What are the company’s expansion plans?
We intend to expand the manufacturing capacity to 2 lakh tractors annually. In keeping with this requirement, Sonalika ITL is coming up with the world’s largest integrated tractor manufacturing plant, strategically set up in Hoshiarpur, Punjab, with an investment of about R500 crore.
The new plant will have a single production line for all variants and models. We are the only company which manufactures major components of the product in-house, and exports to over 80 countries.
How is the export market for Sonalika?
In Fiscal 2014-15, the company sold 77,452 tractors, of which 11,192 units were exported. We export to 80 countries. In terms of revenue, Sonalika ITL’s international business contributes 20% in total revenue annually. We have the No. 1 position in Algeria, Nepal and Myanmar. For Europe and the US markets, we came up with new platform of 90-HP CRDI tractors and are looking to consolidate our position in these markets. As an exploratory step, Sonalika has tied up with Minsk Tractor Works (MTW) to launch Belarus tractors in India and plans exporting it to other countries, which fall under the network of Minsk Tractor Works.
What are Sonalika’s revenues?
Sonalika ITL is a debt-free company. By 2020, the company aims to double its revenue from current $660 million and become a clear leader in the tractor manufacturing industry.