A REPORT ON 31st August, 2010

ANALYSIS OFTRACTOR INDUSTRYIN INDIA Submitted to Prof. Dr.Utpal Chattopadhyay as a part of PGDIE curriculum Team Members

Pankaj Tadaskar (70) Parasram Pariar (72) Ramachandra Chikhalagi (83) Ramesh Babu (84) Sudhir Kumar (101)

Sunit Mhasade (105)

INDEX

1. INTRODUCTION................................................................................................................... 3

2. HISTORY............................................................................................................................. 5

FOREIGN COLLABORATION....................................................................................................... 7

3. INDIAN TRACTOR MARKET OVERVIEW.................................................................................... 8

i) INDUSTRY TRENDS BY REGIONS............................................................................................. 11

ii) INDUSTRY TRENDS BY STATE................................................................................................. 13

iii) REGION-WISE MARKET SHARE OF MAJOR PLAYERS.............. ................................................... 16

iv) INDUSTRY TRENDS BY TRACTOR HORSE POWER (HP).............................................................. 17

4.MARKET CONCENTRATION...................................................................................................... 19
i) MARKET CAPITALISATION IN TERMS OF VOLUME....................................................................... 19

ii) MARKET CAPITALISATION IN TERMS OF TURN OVER............... .................................................. 20

iii) MARKET CAPITALISATION IN TERMS OF SALES...................... .................................................. 20

5. TRACTOR INDUSTRY IN TERMS OF FINANCIALS...................... ................................................. 22

i) P/E RATIO............................................................................................................................. 22

ii) EARNINGS PER SHARE........................................................................................................... 22

iii) PAT (PROFIT AFTER TAX)...................................................................................................... 23

6. EXPORTS............................................................................................................................. 25

7. SOME LONG TERM DEMAND DRIVERS FOR THE INDUSTRY......................................................... 26

8. FUTURE GROWTH IN TRACTOR INDUSTRY................................................................................ 27

9. REFERENCES......................................................................................................................... 28
1. INTRODUCTION :Tractor industry plays an important part as agriculture sector has a major contribution to India’s GDP. Tractors are part of

agricultural machinery industry. Tractors came to India through imports and later on were indigenously manufactured with the help of

foreign collaborations. The manufacturing process started in 1961-62. Indian tractor industry is relatively young but now has become the

largest market worldwide. Higher productivity and greater output are the two major contributions in farm mechanization. Tractors form an

integral part of farm mechanization and have a crucial role to play in increasing agricultural productivity. Tractor is a highly versatile piece

of machinery having a multitude of uses, used in agriculture both for land reclamation and for carrying out various crop cultivation and also

employed for carrying out various operations connected with raising the crops by attaching suitable implements and to provide the

necessary energy for performing various crop production operations involved in the production of agricultural crops. Tractors are capital

intensive, labour displaying used as a mode of transport, in electricity generation, in construction industry and for haulage operation. It has

now become an integral part of farm structure .The application of tractor for agricultural activities which swept India during the last twenty

years have erased the problem of farmers. Farm mechanization program in India aims to integrate the use of available human and animal
farm power with mechanical sources of power for increasing the productivity. Indian tractor industry, comparatively young by world

standards have expanded at a spectacular pace during last four decades. Consequently it now occupies a place of ride in India's automobile

industry. U.S.A., U.S.S.R. and only a few Western European countries exceed the current production of tractors in India, but in terms of

growth India's growth is unmatched even with countries of long history of tractor manufacturing.
The spectacular achievement reflects the maturity and dynamism of tractor manufacturers and also the policies adopted by the government to

enable it to effectively meet the demand. The tractor industry in India has made a significant progress in terms of production and capacity as well

as indigenisation of technology. It is a typical sector where both imported technology and indigenous developed technology have developed

towards meeting the overall national requirements. The global spotlight on tractors manufacturers certainly in terms of volume seems to be

swinging away from the USA, UK and Western and Eastern Europe towards India where growth in the number of producers and the total volume in

recent years have been impressive. In India tractor industry has played a vital role in the development.

India's gross cropped area is next only to United States of America and Russia and long with fragmented land holdings has helped India to become

the largest tractor market in the world. But it drops to eight position in terms of total tractor in use in the country when compared to international

figures, only 3% of total tractors used all over the world . It is to be noted that while the overall automobile industry is facing recession the tractor

industry is growing at 9%.About 20% of world tractor production is carried out in our country only. The arable land in India is high as 12% of the

total arable land in the world. Tractor market in India is about Rs 6000 crore. On an average around 400000 tractors are produced and their sale is
260000.Uttar Pradesh is the largest tractor market in our country. One out of every four tractor is being Purchased here. Indian tractor market has

to be viewed considering its position in the world with respect to key parameters as given below

2. HISTORY

1945 to 1960

War surplus tractors and bulldozers were imported for land reclamation and cultivation in mid 1940's. In 1947 central and state tractor

organizations were set up to develop and promote the supply and use of tractors in agriculture and up to 1960, the demand was met entirely

through imports. There were 8,500 tractors in use in 1951, 20,000 in 1955 and 37,000 by 1960.

1961 to 1970

Local production began in 1961 with five manufacturers producing a total of 880 units per year. By 1965 this had increased to over 5000 units per

year and the total in use had risen to over 52,000. By 1970 annual production had exceeded 20,000 units with over 146,000 units working in the

country.
1971 to 1980

Six new manufacturers were established during this period although three companies (Kirloskar Tractors, Harsha Tractors and Pittie Tractors) did

not survive. Escorts Ltd. began local manufacture of Ford tractors in 1971 in collaboration with Ford, UK and total production climbed steadily to

33,000 in 1975 reaching 71,000 by 1980. Credit facilities for farmers continued to improve and the tractor market expanded rapidly with the total

in use passing the half million mark by 1980.

1981 to 1990

A further five manufacturers began production during this period but only one of these survived in the increasingly competitive market place.

Annual production exceeded 75,000 units by 1985 and reached 140,000 in 1990 when the total in use was about 1.2 million. Then India - a net

importer up to the mid-seventies - became an exporter in the 1980s mainly to countries in Africa.

1991 to 1997
Since 1992, it has not been necessary to obtain an industrial license for tractor manufacture in India. By 1997 annual production exceeded

255,000 units and the national tractor population had passed the two million mark. India now emerged as one of the world leaders in wheeled

tractor production.

1997 to 1999

Five new manufacturers have started production since 1997. In 1998 Bajaj Tempo, already well established in the motor industry, began tractor

production in Pune. In April of the same year New Holland Tractor (India) Ltd launched production of 70 hp tractors with matching equipment. The

company is making a $US 75 million initial investment in a state of the art plant at Greater Noida in Uttar Pradesh state with an initial capacity of

35000 units per year. Larsen and Toubro have established a joint venture with John Deere, USA for the manufacture of 35-65 hp tractors at a

plant in Pune, Maharashtra and Greeves Ltd will produce Same tractors under similar arrangements with Same Deutz-Fahr of Italy. Looking to

South American export markets Mahindra and Mahindra are also developing a joint venture with Case for tractors in the 60-200 hp range. Total

annual production was forecast to reach 300,000 during the following year.

1999 to Present

Facing market saturation in the traditional markets of the north west (Punjab, Haryana, eastern Uttar Pradesh) tractors sales began a slow and

slight decline. By 2002 sales went below 200,000. Manufacturers scrambled to push into eastern and southern India markets in an attempt to

reverse the decline, and began exploring the potential for overseas markets. Sales remained in a slump, and added to the market saturation

problems also came increased problems of "prestige" loan defaults, where farmers who were not financially able took tractors in moves to increase

their family’s prestige. There are also reported increased misuses of these loans for buying either lifestyle goods, or for social functions.
Government and private banks have both tightened their lending for this sector adding to the industry and farmers woes. By 2004 a slight uptick in

sales once again due to stronger and national and to some extent international markets. But by 2006 sales once again were down to 216,000 and

now in 2007-08 have slid further to just over 200,000.

FOREIGN COLLABORATION

Tractor industry along with others benefited from this policy which allowed free inflow of foreign technology .The manufacture of tractors started in

India mainly with the help of foreign collaboration secured from internationally reputed companies from the USA, UK, USSR, WESTGERMANY,

POLAND ,CZECH SLOVAKIA . Most of the models which were taken up for manufacture in India were developed overseas. Soon after the decision

for the manufacture of tractors was made during second plan, government approved number of foreign collaboration agreements.

The establishment and present status of tractor industry owes a great deal to the support received by the Indian entrepreneurs from foreign

collaboration during the initial phase of manufacture

Manufacturer

Collaborator

Year

Eicher Tractors Ltd

Gebr,Eicher Tractor,West Germany

1961

Gujrat Tractors Ltd

Motokov-Praha,Czechoslovakia

1963

TAFE
Messey ferguson,UK

1961

Escorts Ltd

Moloimport Arazawa Zaklady Mechaniczne,

Ursus Poland

1964

Mahindra & Mahindra International harvestor,UK

1965

Escorts Tractors ltd

Ford UK

1971

Hindustan Machine

Tools

Motokov-Praha,Czechoslovakia

1971

Kirloskar Tractors ltd

Klochner-Humboldt Deutz.Germany
1974

PanjabTractors ltd

CEMRI.INDIA

1974

Pittle Tractor Ltd

Own Know how

1974

Harsha Tractors ltd

Moto Import,Rassia

1975

Auto tractor Ltd

British Leyland,UK

1981

Pratap Steel Rolling

Mill

Own Know how

1983
VST Tillers

Mitsubishi,Japan

1983

United Auto tractor Ltd Jznina tractorul,Romania

1986

Asian tractor Ltd

Own Know how

1989

Bajaj Tempo ltd

Own Know how

1987

International Tractors

Own Know how

1998

Larson & Tubro Ltd

John Deere US

1999
New Halland Tractors

New Halland Tractors,Italy

1999

Greaves Ltd

Same Deutz Fhar, italy

1999
3. INDIAN TRACTOR MARKET OVERVIEW

The tractor penetration level in India is very low as compared to the world standards. Also the penetration levels are also not uniform throughout

the country. While the northern region is now almost saturated in terms of new tractor sales, the southern region is still under penetrated. The

medium horse power category tractors, 31-40 HP are the most popular in the country and fastest growing segment.

There are currently 14 players in the industry. Mahindra & Mahindra is the leading player in the industry. Monsoon season is a key driver for sales

of tractors. A series of good or bad monsoon can affect the sales. In recent years the industry has registered a good growth in sales, both domestic

as well as exports. This is also partly because of the initiative of the government to boost up agriculture and agricultural machinery industry.

Tractor industry has made a steady and satisfactory progress even in drought areas.

Description

Units

World total/Avg

India

India Rank

Available land

Mn Hector

1444

170
2

Irrigated area

Mn Hector

249.6

45.8

Tractors in use

Tractors/1000

Hectors

28

10.5

(Source:http://ww w.sc ribd.com/doc/365370 01/ Tractor -Industry -in-India

The tractor industry reported a strong 28.3% growth in sales volumes during 2009-10, thereby ending the phase of cyclical correction that had

pulled down tractor sales

during
the preceding two years (2007-09). Significantly, the revival of 2009-10 happened despite the drought-like conditions in many States during the

kharif

season

dampening sentiments.

The key factor enabling the demand growth of 2009-10 was strong rural liquidity, which in turn was sustained by several factors, including: higher

minimum support price (MSP) for crops; greater ability of farmers to make cash purchases (including the usage of Kisan Credit Card which are

increasingly being used to part-finance tractor purchases); enhanced employment opportunities (with rural employment schemes being

implemented by the Government of India); an improved credit environment; and continuance of replacement demand.

These factors apart, non-agricultural use of tractors (for haulage in construction and infrastructure projects) continued to increase, benefiting

tractor demand. Also, with infrastructure projects and rural employment schemes increasing employment opportunities, availability of labour for

agricultural activities continued to decline, persuading even farmers with medium-sized land holdings to either rent or purchase tractors.
On a regional basis, the performance of the eastern, northern and western parts of the country was robust during 2009-10 in terms of tractor

demand, while that of the southern region was moderate. A strong growth in tractor volumes, albeit on a low base, was witnessed in the eastern

States, including Bihar, Orissa and Jharkhand, which had a good paddy crop. Tractor volumes in the northern and western regions also reported

strong growth during 2009-10, especially in the second half (H2) of the year, benefiting from a low base (H2, 2008-09) and a satisfactorykharif

crop in some States. The southern region reported moderate performance in terms of tractor demand (growth of 11.9% in 2009-10), being

impacted largely by the de-growth in Andhra Pradesh (AP)—a key southern market— where rainfall was irregular in 2009-10. However, in

Karnataka and Tamil Nadu, higher MSPs for rice along with some revival of interest of public sector banks (PSBs) in tractor financing led to strong

tractor sales volumes.

Historically, tractor demand has been fairly volatile, being influenced by cyclical trends, availability of finance, and crop patterns (monsoon). After

four years of strong growth during 2003-07, the fiscal years 2007-08 and 2008-09 both reported a marginal decline in tractor sales volumes,

largely reflecting cyclical corrections. In addition to the cyclical dips, during H2, 2008-09, the industry also had to cope with the liquidity crunch,

which pushed up interest rates, even as financiers resorted to more stringent lending norms in the face of rising non-performing assets (NPAs).

However, the situation improved during 2009-10 as credit availability improved on the strength of greater liquidity in the banking system. While

tractor financing has traditionally been done by PSBs, of late, private banks and non-banking finance companies (NBFCs), despite their higher

interest rates vis-à-vis the PSBs, have been able to increase their penetration of this market on the strength of faster loan processing and use of

more liberal credit norms.

Overall, with tractor demand being closely linked to agricultural output, growth in farm mechanisation and farmers’ remuneration, the long-term

demand drivers for the industry remain robust. The currently low levels of tractor penetration in India, strong Governmental focus on availability of

finance for agriculture mechanization tools and on rural development, increase in the use of tractors for non-agricultural purposes, and the growing

emphasis on tractor exports augur well for the industry.

The tractor industry reported a compounded annual growth rate (CAGR) of over 20% in volume terms during the period 2003-07. The long up-

cycle in demand was supported by several factors, including excise duty exemptions on tractors (2004-05), thrust on rural development, improved

availability of finances for tractor purchase, and low interest rates.

The growth also came on a low base, with the preceding three fiscal years (2000-03) having witnessed a prolonged phase of volume correction.

The cyclical correction during 2000-03 had been aggravated by the build-up of channel inventory with the major players having pushed

aggressively for larger sales. In contrast to this phase of cyclical slowdown, the one that happened during 2007-09 was less severe, with volumes

declining by around 3%, despite the intermittent tightening of the liquidity situation during H2, 2008-09.
The demand slowdown during H2, 2008-09 also impacted the profitability of the original equipment manufacturers (OEMs), that is, the tractor

manufacturers, because of the high price inventory they were carrying. However, the situation improved on the cost structure front in H1 2009-10

with the softening of commodity prices preparing the ground for the industry to earn higher profitability margins. The pickup in volumes also

lowered the overhead expenses for the tractor manufacturers, boosting their profitability. While the OEMs did not lower the listed sales price of

tractors, the benefit of lower steel prices was passed on to the end customers via discounts. This is an accepted practice in the industry; given that

once prices are lowered it is difficult to raise them subsequently. However, during H2 2009-10, the tractor majors increased the prices with the

reversal of commodity prices and the discounts have also come down.

Capacity utilisation in the tractor industry had hit a low during 2002-03, following large capacity additions and a volume slump. After that, capacity

utilisation improved steadily, but remained moderate at around 50% during 2008-09. In 2009-10, the tractor volume growth has helped the OEMs

improve their capacity utilizations; however, there is still excess capacity in the industry. Thus, over the medium term, most tractor manufacturers

would not need to make any significant capital investments in building capacities.

As discussed, the domestic tractor industry has to cope with demand volatility on account of cyclical trends and the strong linkages it has with

agricultural production and monsoon rains. Many of the industry players have thus diversified into related products, including generator engines

and cranes, besides focusing more on exports, to gain some insulation against the volatility in domestic tractor demand. As for tractor exports,

while a major part of that currently goes to USA, the OEMs are now exploring various other markets across Europe, Asia and Africa for future

exports.
i)

INDUSTRY TRENDS BY REGIONS

The biggest markets for the tractor industry include States like Uttar Pradesh (UP), Andhra Pradesh (AP), Madhya Pradesh (MP), Rajasthan, and

Maharashtra, which together accounted for around 50% of the total tractor sales in India during 2009-10. The tractor industry witnessed a strong

y-o-y growth of 28.3% during 2009-10, with most of the States reporting positive growth during the year.

Trend in Tractor Sales across regions

The northern region remains the largest tractor market in India with sales of around 1,67,000 units as of 2009-10. This region reported a growth

rate of 35.7% in volume sales in 2009-10 over the previous fiscal, with the key contributors including UP, Punjab, Haryana and Rajasthan. The

northern region benefited from higher MSPs (for crops), limited availability of labour (forcing higher mechanisation), and increasing non-

agricultural use of tractors.

Additionally, increased infrastructure development activities (especially highways) led to appreciation in land values and use of tractors for non-

agricultural purposes. In some cases, farmers also received compensation for the Government’s acquisition of select land patches (adjoining

highways), which increased the availability of cash with them. Feedback from industry players suggests cash purchases (including purchases using

Kisan Credit Card) in some northern States increased to 35-40% of the total tractor volumes in 2009-10 from 10- 15% in the past.

Trend in Tractor sales across States

Tractor volumes in UP grew by 42.7% during 2009-10, with H2, 2009-10 reporting particularly strong growth (around 51% y-o-y) mainly on the

back of high sugarcane prices for thekharif crop and improved irrigation facilities. In the case of Punjab, tractor volumes remained strong for the

fifth straight year in 2009-10 (y-o-y growth of 42%). In Rajasthan however, growth in tractor volumes was relatively subdued in 2009-10 (around

24% y-o-y) as compared with the figure for the northern region as a whole. Tractor sales in Rajasthan were especially low in H2, 2009-10 versus

H1, 2009-10, due to lower kharif output on account of deficient rains and inadequate financing availability.
In the eastern region, tractor volumes continued to report strong growth in 2009-10, albeit on a small base, and went up by 53.8% over 2008-09,

being driven mainly by the higher MSPs announced for paddy. Within the region however, many financiers remained reluctant to finance tractor

purchases in some States like Bihar. Nevertheless, in Bihar, tractor volumes grew 66% over 2008-09 to around 29,000 units in 2009-10, thereby

accounting for over 50% of the total sales in the eastern region. The Bihar market, where tractor penetration had been low historically, has shown

sustained growth over the last few years and become one of the important markets for the tractor industry. Overall, in the eastern region, growth

in tractor volumes is expected to moderate, going forward, as the benefit of a low base get diluted gradually.

The western region reported sales of around 92,000 tractor units during 2009-10—a growth rate of 35.7% over the previous fiscal—benefiting

particularly from the strong performance that Maharashtra, Gujarat and MP posted during H2, 2009-10 (55% y-o-y growth over H2, 2008-09). The

factors contributing to the strong growth in the region during H2, 2009-10 included a benign base effect, higher crop prices (of sugarcane and

cotton in Maharashtra, and of cereals and soyabean in MP), and greater availability of retail finance.

The performance of the southern region in terms of tractor sales was relatively modest during 2009-10, with the growth rate being around 11.9%

over the previous fiscal. While most States in the region reported healthy growth, AP, which is the largest tractor market in the south, de-grew by

10.4% in 2009-10.

ii)

INDUSTRY TRENDS BY STATE

Punjab, Uttar Pradesh and Haryana were the first States to benefit from the Green Revolution and hence have traditionally accounted for most of

the tractor sales. However, given the high penetration of tractors in these Northern States, the geographical concentration of tractor sales is
gradually shifting to the Western and Southern States of the country. States like Gujarat, Andhra Pradesh and Madhya Pradesh have reported

significant increases in tractor volumes over the past three years. This trend is continuing in the current fiscal also, as the intensity of

tractorisation in North India is quite high already. Table 5 depicts the distribution of tractor sales in the country in the first quarter of the current

fiscal vis-a-vis the like period previous year.

The biggest markets for the tractor industry include States like Uttar Pradesh (UP), Andhra Pradesh (AP), Madhya Pradesh (MP), Rajasthan, and

Maharashtra, which together accounted for around 50% of the total tractor sales in India during 2009-10. The tractor industry witnessed a strong

growth of 28.3% during 2009-10, with most of the states reporting positive growth during the year.

The performance of the southern region in terms of tractor sales was relatively modest during 2009-10 with the growth rate being around 11.9%

over the previous fiscal. While most States in the region reported healthy growth, AP, which is the largest tractor market in the south, de-grew by

10.4% in 2009-10.

The market shares of the top four players in the Indian tractor industry did not change much during 2009-10 in comparison with 2008-09. M&M

remained the market leader with around 41.1% market share, followed by TAFE with a market share of around 22%, Escorts with around 12.1%

and International Tractors (ITL) with around 8.9%.

Trend in State wise market share

The Indian tractor industry has around 13 national players and a few regional players. The industry is dominated by Mahindra and Mahindra (M&M)

with a market share of around 41.1%, followed by Tractors and Farm Equipments TAFE, which holds around 22% of the market. The other major

players include Escorts (12.1%), L&T-John Deere (7.8%), and International Tractors Limited (8.9%). During the last few years, the industry has

seen some consolidation with M&M acquiring Punjab Tractors (PTL) and TAFE acquiring Eicher Tractors. Most of the tractors sold in India are in the

21-50 HP range, with the 31-40 HP category alone accounting for around 50% of this.

The tractor industry reported a strong 28.3% growth in sales volumes during 2009-10, thereby ending the phase of cyclical correction that had

pulled down tractor sales during the preceding two years (2007-09). Significantly, the revival of 2009-10 happened despite the drought-like

conditions in many States during the kharif season. The key factors enabling the demand growth of 2009-10 were,

1. Strong rural liquidity

2. Higher Minimum Support Price (MSP) for crops

3. Greater ability of farmers to make cash purchases

4. Enhanced employment opportunities

5. Improved Credit environment

6. Continuance of replacement demand

7. Non-agricultural use of tractors

8. Change in product mix

9. Distribution network
iii)

REGION-WISE MARKET SHARE OF MAJOR PLAYERS

The market shares of the top four players in the Indian tractor industry did not change much during 2009-10 in comparison with 2008-09. M&M

remained the market leader with around 41.1% market share, followed by TAFE with a market share of around 22%, Escorts with around

12.1%,

and

International

Tractors

(ITL)

with

around

8.9%.

M&M remains particularly strong in the southern region (50.4% market share during 2009- 10). However, L&T John Deere (LT-JD) was able to

increase its market share in the region by around 250 bps in 2009-10, mainly at the expense of M&M (market share down by 140 bps) and Escorts

(down by 140 bps). In the western region too, LT-JD performed well in 2009-10, increasing its market share by 190 bps, even as TAFE lost market

share by around 90 bps there.

In the northern region, where M&M has been traditionally weak, the company increased its market share by 140 bps during 2009-10, even as ITL

and Escorts lost market shares by around 90 bps and 60 bps respectively, there. In the eastern region, M&M was able to raise its market share by

around 140 bps in 2009-10 at the expense of Escorts and TAFE.

iv)

INDUSTRY TRENDS BY TRACTOR HORSE POWER (HP)

Tractors can be classified into four different categories. The sales of tractors with engine power below 20 HP have been very small in the past, and

their share of the total sales is currently insignificant. The following table presents the shares of the different tractor segments in the total sales.

The four segments in the Indian tractor market are discussed here.

21-30 HP: The share of this segment in total tractor sales declined from 34% in 1989-90 to
23% in 2003-04. These tractors are suitable for the soft soil conditions in the Northern States like Punjab, Haryana and Uttar Pradesh. However,

with the penetration rates in these States increasing, the demand for tractors in this segment has declined. These tractors are used primarily for

agricultural applications.

31-40 HP: This segment accounted for 49% of all tractors sold in 1989-90 and for 50% in

2003-04. The soil in the Western and Southern regions of the country is relatively hard and hence farmers here prefer using tractors of 31-40 HP.

This segment dominates the Indian tractor market and has grown at the expense of the small HP segment (21-30 HP). The reasons for this are the

low price differential between the small and medium segment tractors.

41-50 HP: This segment’s share increased from 15% in 1989-90 to 21% in 2003-04. With the

increasing shift towards modern farming methods, sales of tractors in this segment may witness an increasing pace of growth in the coming years.

Farmers with large land holdings prefer these tractors.

Above 50 HP: This segment’s share increased slowly but steadily from 2% in 1989-90 to 7%

in 2003-04. Above 50 HP tractors are not only used for agricultural applications, but also serve as a mode for haulage and transportation. The >51

HP segment of the Indian tractor market also underperformed the industry growth rate in 2009-10 mainly because of the decrease in the exports

which is a key demand area for these high HP tractors.

Over the past 10 years, there has been a perceptible shift away from the 21-30 HP segment towards the higher segments. The larger tractors can

prove more economical for bigger land holdings. In the case of a 35-40 HP tractor, the hourly diesel consumption is around 3.5 litres. The same

goes up to 4.5 1itres for a 50 HP tractor and to 7.5-8 litres for a 70 HP tractor. But in an hour, the 35-40 HP tractor can cover only 2.5-3 acres,
compared with 5 acres for the 50 HP and 9-10 acres for the 70 HP tractor. So, higher the HP, better the overall fuel efficiency. However, the high

cost of the larger tractors and the low average size of land holdings in India constrain the utility of the larger tractors.

The Indian tractor market has traditionally been a medium HP market, with 31-40 HP tractors accounting for around 47% of the total industry

volumes. In 2008-09, the 31-40 HP category had reported sales of 157,602 tractor units, which was about the same as the previous year’s figure

but lower than the 2006-07 statistic by 7%. In 2009-10 however, this category reported a strong revival, with the volume growing by 22%2 over

2008-09; the revival was led by UP, Karnataka and Madhya Pradesh.

The other major segment in the Indian tractor market is the 41-50 HP range, which accounts for around 23% of the total industry volumes. This

segment grew by around 10% during 2009-10, thereby underperforming the growth in overall tractor volumes (around 19%) that year. The main

reason for this underperformance was the low growth that the southern region, the biggest market for this segment, reported in 2009-10.
4. MARKET CONCE

NTRATION

Market concentration in tr

actors industry is fairly high with top two players, M&

(including Punjab Tractors) a

nd TAFE accounting for 63 per cent of the market in 2007

Market concentration incre

ased over the past 4 years due to the acquisition of Eicher

tractors by TAFE in 2005-06 a

nd PTL’s acquisition by M&M in 2006

i)

MARKET CAPI

TALISATION IN TERMS OF VOLUME

As it seen from the above

graph of market capitalisation, Mahindra and Mahindra has

become the giant in tractor i

ndustry over the last few years and has captured the market
upto 80% of the total segmen

tal industry.

Escorts

5%

Forc

3%

HMT

24%

M& M

59%

PTL

9%

VS Tiller

0%

2005

Escorts
3%Force

1%

HMT

22%

M& M

68%

PTL

6%

VS

Tiller

0%

2008

MARKET CONCEN

TRATION

Market concentration in tra

ctors industry is fairly high with top t

wo players, M&
(including Punjab Tractors) an

d TAFE accounting for 63 per cent of the

market in 2007

Market concentration increa

sed over the past 4 years due to the ac

quisition of Eicher

06 a

nd PTL’s acquisition by M&M in 2006-07.

CAPIT

ALISATION IN TERMS OF VOLUME

Market share of the major player

As it seen from the above

graph of market capitalisation, Mahindra

and Mahindra has

become the giant in tractor i

ndustry over the last few years and has ca

ptured the market

upto 80% of the total segmen

tal industry.

Force

Escort

3%

Force

3%

HMT

16%

M&

71%

PTL

7%
VS

Tiller

0%

2006

PTL

6%

Escorts

3%

Force

1%

HMT

16%

M& M

75%

PTL

4%
VS

Tiller

1%

2009

Esc

orts

VS

Tiller

1%

Market concentration in tractors industry is fairly high with top tw

o players, M&M

(including Punjab Tractors) and TAFE accounting for 63 per cent of the m

arket in 2007-08.

Market concentration increased over the past 4 years due to the ac

quisition of Eicher
As it seen from the above graph of market capitalisation, Mahindra

and Mahindra has

become the giant in tractor industry over the last few years and has ca

ptured the market

Escorts

4%

Force

2%

HMT

14%

M& M

74%

VS Tiller

0%

2007

Esco

rts
4%

Force

1%

HMT

14%

M& M

80%

2010
ii)

MARKET CAPI

TALISATION IN TERMS OF TURN OVER

In the long run, Mahindra

&

industry due to well divers

ified product mix, strong pan India presence, cost

operations and rising global

sales. Now, post

has become stronger. In total

, it commands a 38 per cent market share.

iii)

MARKET CAPI

TALISATION IN TERMS OF SALES

5000
10000

15000

20000

25000

30000

35000

2005

2006

RsinCrores

MARK

ET CAPITALISATION

Escorts

M& M

1000

2000

3000
4000

5000

Escorts

SalesinRs.C

rore

200

200

MARKET CAPIT

ALISATION IN TERMS OF TURN OVE

In the long run, Mahindra &

Mahindra is expected to remain the le

ader in the tractor

industry due to well divers

ified product mix, strong pan India pres

ence, cost

operations and rising global

sales. Now, post-acquisition of Punjab Trac

tors, its leadership

er. In total

, it commands a 38 per cent market share.

MARKET CAPIT

ALISATION IN TERMS OF SALES

2007

2008

2009

2010

Year

MARKE

T CAPITALISATION

Force

HMT
PTL

VS Tiller

ITL

John Deer

M& M

Company

Sales Value

2005

2006

2007

2008

2009

MARKET CAPITALISATION IN TERMS OF TURN OVER

Mahindra is expected to remain the lea

der in the tractor

industry due to well diversified product mix, strong pan India prese

nce, cost-efficient
acquisition of Punjab Trac

tors, its leadership

TAFE
The key success factors for the players will continue to include diversified product portfolio, nation-wide distribution strength and cost

competencies. The relative ranking of players based on market share will remain stable with increasing polarisation of market position between

stronger and marginal players.

After the acquisition of Eicher Motor’s tractor division, TAFE has emerged a strong number two in the industry with better product portfolio and

distribution network (although overlapping may cause some loss of share). TAFE’s share went up to 28 per cent after its acquisition of Eicher

Escorts and International Tractors, with a market share of 14 per cent and 10 per cent, respectively, are expected to remain strong competitors in

the medium-to-long term. International Tractors is expected to maintain its share as it would not be able to grow at higher than industry growth

rate.

Global players like John Deere and New Holland India are likely to provide strong competition to the other well established players in the coming

years as they strengthen their Indian product portfolio and distribution network and remain major exporters.

Smaller players like Force Motors, VST Tillers and HMT are likely to be marginalized further in the long run due to lack of diversified product

portfolio, poor nation-wide distribution network and weakness in cost structure.

20000

40000

60000

80000
100000

120000

140000

Escorts

ITL

John Deer

M& M

TAFE

Sales In Quantity

2005

2006

2007

2008

2009

Analysis of Tractor Industry in India

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