Auto - Tractors: March 2013 sales update - FY13 a slow year; FY14 expected to be better - BRICS

Tractor sales remained flat at 52,563 units in March 2013, out of which, domestic sales contributed 87% (45,846 units) and exports grew 14% yoy, led by Sonalika and TAFE. The industry had expected winter rains to support volume in H2, but is now betting on the harvest season starting from April 2013 to drive sales. While the Ministry of Agriculture estimates Rabi sowing at 101% of the average yearly sown area, rains in March 2013 have been 54% below LPA - the impact of which is yet to be ascertained.

In FY13, tractor sales declined 2.6% yoy (in line with BRICS' estimate) to 589,648 units, with domestic sales and exports down 1.5% yoy and 11% yoy. Contribution of Madhya Pradesh and Rajasthan increased significantly (both up 280bps+ yoy) to 12% each. The impact of the drought in Maharashtra and Gujarat was reflected in the decline in their contribution to total sales.

In FY13, Sonalika (up 17% yoy) and New Holland (up 3% yoy) were the only players to record growth, while sales of the remaining players declined yoy - M&M was down 5%, TAFE declined 1%, Escorts was down 1%, John Deere fell 15% and HMT fell 8%.

Outlook: We expect the tractor industry to remain under pressure in H1FY14 due to: 1) lower increase in incomes on account of lower rise in MSPs, and 2) high finance costs. We estimate tractor sales to increase by 4% (605,365 units) in FY14, and by 6% (706,450 units) FY15. Among the tractor stocks under our coverage, we maintain Buy on M&M and Reduce on Escorts.

Source : Equity Bulls

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