Tractor companies get back to capacity additions, Auto News, ET Auto


Tractor companies get back to capacity additionsChennai: Tractor is the only segment of the automotive market that has seen double digit sales growth since July, with September retails up 80% year-on-year. As a result, tractor companies are ramping up production capacity hoping that this sales spike will continue beyond the festival and harvest season.

While there are no indications about setting up new factories just yet, companies like Mahindra, Escorts and Sonalika are increasing shifts and clearing supply chain snags to hit 100% utilisation both for domestic and export sales.

“For 18 months, tractor factories were working on a single or 1.5 shifts at best because of demand slowdown. With the numbers picking up, factories are moving to two or three shifts to hit 100% capacity utilisation. The tractor capacity in India is currently 9.5 lakh units on a two-shift basis but we can also go to three shifts if the demand holds up,” said Tractor Manufacturers Association president T R Kesavan. A survey by rating agency ICRA showed that just 10-12% of those who purchased tractors opted for the loan moratorium as opposed to 75% truck and bus buyers. Backing the demand, tractor financing has also picked up because financiers are wary of truck and bus loans and look at tractors as a better option, said ICRA VP Shamsher Dewan. “Capacity utilisation in the industry has risen from 66% in FY17 to 65% in FY18 and 74% in FY19,” he added. Tractor majors are coming off a capex peak in terms of plant and product. Market leader Mahindra is investing in the K2 project of developing a new tractor platform with Mitsubishi. “Increasing capacities is a long-term process and cannot be done in the short term to take advantage of an immediate strong demand. We are currently working at 100% capacity across our plants given the buoyant demand. We are further enhancing the efficiency of our current system and process through line balancing and outsourcing. With supply chains getting stabilised since mid-August, we are working towards higher production in October,” said Hemant Sikka, president (farm equipment sector) at Mahindra & Mahindra.

The supply chain disruption is still a worry for the industry, which is now racing to hit 100% production. “Capacity extension within our current facilities is a continuous process.Also, we have additional capacity available through our JV with Kubota. However, the issue right now is more to do with volatility in the supply chain because of Covid,” said Shenu Agarwal, CEO (agri machinery & emerging business) at Escorts. Tractor makers also say that the next round of investments will be dictated by regulatory requirements in export markets. “We had reached 80% utilisation in the 4th week of May itself and are now at 100% levels on two-shift basis. However, capacity tweak investments are an ongoing process and the company would continue to invest in strengthening technology to meet various regulatory policy changes and customer needs across the globe,” said Raman Mittal, executive director, Sonalika Group, speaking about the company’s integrated plant at Hoshiarpur.





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