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Business Standard
21-04-2025
- Automotive
- Business Standard
Monsoon tailwinds, MSP hike to drive tractor sales in FY26: CRISIL
Riding on an expected above-normal monsoon, increased minimum support prices (MSPs) for key crops, and rising replacement and construction demand, domestic tractor sales are projected to reach a record high of approximately 9.75 lakh units in financial year 2026. This would mark a 3–5 per cent year-on-year growth. A recent analysis by CRISIL Ratings indicates that this surge in demand will likely propel sales beyond the previous peak of 9.45 lakh units achieved in FY23, sustaining the consistent volume expansion witnessed since FY19. This projection follows a healthy 7 per cent increase in tractor sales in FY25, according to the Crisil report. In contrast, tractor retail sales dipped, with FY25 ending at 8,83,095 units—down 1.04 per cent from 8,92,410 units in FY24, as per data from the Federation of Automobile Dealers Associations (FADA). Analysts attribute the expected turnaround in FY26 to favourable macro and agri-linked factors. 'The India Meteorological Department's forecast of an above-normal monsoon should lift rural sentiment and reinforce farmer confidence,' said Anuj Sethi, senior director, Crisil Ratings. 'This, along with the expected rise in MSP for key cash crops and a pick-up in construction activity, should help drive tractor volumes higher this year.' Another factor expected to boost sales is the anticipated implementation of Bharat TREM V emission norms from April 1, 2026. With prices likely to rise 10–20 per cent post-implementation, depending on horsepower, a wave of pre-buying is expected in the final quarter of FY26—similar to what was observed when TREM IV norms were rolled out in January 2023. Tractors in the 41–50 HP range, which account for over 60 per cent of industry volumes, are expected to remain dominant, especially as farmers remain price-sensitive. During the TREM IV phase, many buyers shifted to lower HP models to avoid price hikes. Despite the regulatory headwinds, Crisil expects operating margins for manufacturers to remain stable at 13.0–13.5 per cent in FY26, due to easing input costs and healthy volumes. This stability provides a cushion for investments in capacity expansion and emission control technologies. 'With capacity utilisation nearing 75–80 per cent and the TREM V transition ahead, OEMs are likely to enter a strategic capex cycle of around Rs 4,000 crore. Yet, the capex-to-Ebitda ratio will remain lean, under 0.25 times, reflecting the sector's financial strength,' said Poonam Upadhyay, director, Crisil Ratings. Agriculture continues to drive 70–75 per cent of tractor demand, with the rest coming from construction and infrastructure activity—sectors set to benefit from government allocations in the Union Budget. However, analysts caution that the final outcome will depend on several evolving factors, including the spatial and temporal distribution of monsoon rains, movement in commodity prices, interest rate trends, and the timely implementation of emission regulations.
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Business Standard
21-04-2025
- Automotive
- Business Standard
Tractor sales in FY26 to hit record 975K units, ₹4K cr capex likely: Crisil
Higher minimum support prices for key cash crops, better replacement and construction demand amid hopes of above-normal monsoon are likely to drive domestic tractor sales to hit an all-time high of around 975,000 units in 2025-26, growing at 3-5 per cent, according to Crisil Ratings. A strategic capex cycle worth ₹4,000 crore is around the corner in the Indian tractor industry with capacity utilisation nearing optimal levels of 75-80 per cent and the push for cleaner technologies under TREM V, the analytics firm said in a statement. The emission norm of 'TREM V' is expected from April 1, 2026, pre-buying towards fiscal-end may also provide a fillip to volume, it added. "As a result, tractor sales this fiscal year are expected to surpass the peak of 945,000 units achieved in fiscal 2023, sustaining the back-to-back volume growth seen during fiscal 2019," it noted. There was a healthy 7 per cent increase in sales in FY25, Crisil Ratings said. The Indian Meteorological Department's forecast of above-normal monsoon should lift rural sentiment and reinforce farmer confidence, which is crucial for driving farm investments such as tractors, Crisil Ratings Senior Director, Anuj Sethi said. "This, along with the expected rise in MSP for key cash crops, and pick-up in construction activity, especially roads, supported by sizeable government allocation in the Union Budget for this fiscal, should help drive 3-5 per cent volume growth for tractors this fiscal," he noted. Besides, Sethi said, "the anticipated TREM V-driven price hikes from April 2026 could trigger pre-buying in the last quarter of fiscal 2026, providing a boost to volume." Crisil said the rollout of stricter emission norm TREM V across all horsepower (HP) segments is expected to increase tractor prices 10-20 per cent, depending on engine capacity. A similar trend played out post the TREM IV, which was implemented on January 1, 2023, when above-50 HP tractor sales dropped, and farmers pivoted to 41-50 HP models -- the dominant segment with 64 per cent share -- highlighting their sensitivity to price hikes, it added. Rising volumes and easing input costs should keep the operating margin of manufacturers stable at 13.0-13.5 per cent this fiscal, in line with the past two fiscals. With strong cash flow, low debt and robust liquidity, tractor makers are well-positioned to invest in capacity and upgrade emission control technologies, it added. Crisil Ratings Director, Poonam Upadhyay said tractor manufacturers have entered FY26 on a strong footing with margins stable at 13-13.5 per cent on softer input costs and sustained volume growth. "With capacity utilisation nearing optimal levels of 75-80 per cent and the push for cleaner technologies under TREM V, a strategic capex cycle is around the corner, worth ₹4,000 crore," Upadhyay said. Crisil Ratings, however, said the spatial and temporal distribution of monsoon and its impact on agriculture and rural incomes, movement in commodity prices and interest rates, and implementation of emission norms will remain monitorables over the medium term.
