Farm Loan waiver may boost tractor and Farm equipment sales

The cumulative farm loan waiver of nearly Rs 1 lakh crore announced by several state governments is likely to benefit farm equipment companies such as Mahindra & Mahindra (M&M), Escorts and VST Tillers. In 2008, after the government waived off farm loans, tractor volume grew at an annualised rate of 21 per cent for the next three years. 
 

A likely above average monsoon, higher sowing acreage, and moderate minimum support prices for various crops are likely to support farm income in addition to the loan waivers. 

In 2008, the central government had announced farm loan waiver of Rs 70,000 crore and spent Rs 52,000 crore towards the scheme. After this, tractor volumes saw a sizeable pickup in volumes in March 2009 and September 2009. Agricultural product prices during the same period remained buoyant. 
 

In FY18 so far, Uttar Pradesh, Maharashtra and Punjab have announced farm loan waivers of Rs 36,000 crore, Rs 30,000 crore and Rs 20,000 crore, respectively . These three states contribute nearly one-third to the total tractor industry volumes. 
 

Other states such as Karnataka and Haryana are also considering farm loan waiver. CLSA, a broker, estimates that total farm loan waivers may amount to $30 billion (approximately Rs 2 lakh crore). Analysts expect that a fair share of the savings could be channelized to buy farm equipment. 
 

M&M, India's largest tractor manufacturer, is likely to benefit the most from incremental tractor volume growth. The company has guided for 10-12 per cent volume growth for the tractor industry in the current fiscal. 

Analysts expect 15-18 per cent volume growth for M&M in FY18 since it has been outperforming the industry growth for the past two years. M&M's operating margin for tractors is nearly double of the automotive business, which means higher volume growth of tractor is not only positive for revenue growth but is also margin accretive. The company's tractor volume grew by 13 per cent in the first quarter of FY18. 
 

Source:- http://economictimes.indiatimes.com