The tractor industry volume is likely to de-grow 5-7 percent in the current fiscal on weak growth in rural income, moderation in rural infrastructure spending and higher channel inventory, says a report. Tractor sales in the last fiscal stood at an all-time high of 8.78 lakh units, rating agency Crisil said in a report Tuesday, adding the high base effect will also contribute to the decline. However, despite lower volume, resilient margins of 14-16 percent and strong balance sheets are expected to keep credit profile of the manufacturers stable, it said. Also, long-term growth potential remains healthy given lower penetration of 1.5 hp per hectare, compared with an average 6-7 hp in the developed economies and 3-4 hp in the emerging economies. This should give hope to domestic tracker makers, though an immediate revival in tractor sales remains contingent on an improvement in purchasing power in rural markets, it added. Despite lower overall volume, the operating margins of tractor makers should be resilient at 14-16 percent, supported by easing commodity prices. The prices of steel and pig iron, which account for 90 percent of the raw material costs, have corrected about 7- 10 percent between April and July. This should help mitigate the impact of discounts being offered by tractor makers to push sales, Crisil said.

(Economic Times)