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A REPORT ON ANALYSIS OF TRACTOR INDUSTRY IN INDIA Submitted to Prof. Dr.

Utpal Chattopadhyay as a part of PGDIE curriculum Team Members Pankaj Tadaskar (70) Parasram Pariar (72) Ramachandra Chikhalagi (8 3) Ramesh Babu (84) Sudhir Kumar (101) Sunit Mhasade (105) 31st August, 2010

INDEX 1. 2. INTRODUCTION ............................................................. .................................................................. 3 HISTORY ... ................................................................................ ....................................................... 5 FOREIGN COLLABORATION ................................................................................ ................................. 7 3. i) ii) iii) iv) 4. i) ii) iii) 5. i) ii) iii) 6. 7. 8. 9. INDIAN TRACTOR MARKET OVERVIEW ................................ ........................................................... 8 INDUSTRY TRENDS BY REGIONS........................................................................ ........................ 11 INDUSTRY TRENDS BY STATE ........................... ......................................................................... 13 REG ION-WISE MARKET SHARE OF MAJOR PLAYERS ......................................... ........................ 16 INDUSTRY TRENDS BY TRACTOR HORSE POWER (HP) ........ ...................................................... 17 MARKET CONCENTRATION ........................................................... ................................................ 19 MARKET CAPITALISATION IN TER MS OF VOLUME.................................................................... 19 MARKET CAPITALISATION IN TERMS OF TURN OVER ................................ ............................... 20 MARKET CAPITALISATION IN TERMS OF SALES...... ................................................................... 20 TRACTOR INDUSTRY IN TERMS OF FINANCIALS......................................... ................................... 22 P/E RATIO ............................... ................................................................................ ................... 22 EARNINGS PER SHARE ...................................... ......................................................................... 22 PAT (PROFIT AFTER TAX) ............................................................ ............................................... 23 EXPORTS ........................................................................ ................................................................ 25 SOME LONG TE RM DEMAND DRIVERS FOR THE INDUSTRY ............................................. ............ 26 FUTURE GROWTH IN TRACTOR INDUSTRY .............................. ..................................................... 27 REFERENCES ............ ................................................................................ ...................................... 28

1. INTRODUCTION Tractor industry plays an important part as agriculture sector has a major contr ibution to Indias GDP. Tractors are part of agricultural machinery industry. Trac tors came to India through imports and later on were indigenously manufactured w ith the help of foreign collaborations. The manufacturing process started in 196 1-62. Indian tractor industry is relatively young but now has become the largest market worldwide. Higher productivity and greater output are the two major contributions in farm m echanization. Tractors form an integral part of farm mechanization and have a cr ucial role to play in increasing agricultural productivity. Tractor is a highly versatile piece of machinery having a multitude of uses, used in agriculture bot h for land reclamation and for carrying out various crop cultivation and also em ployed for carrying out various operations connected with raising the crops by a ttaching suitable implements and to provide the necessary energy for performing various crop production operations involved in the production of agricultural cr ops. Tractors are capital intensive, labour displaying used as a mode of transpo rt, in electricity generation, in construction industry and for haulage operatio n. It has now become an integral part of farm structure .The application of trac tor for agricultural activities which swept India during the last twenty years h ave erased the problem of farmers. Farm mechanization program in India aims to i ntegrate the use of available human and animal farm power with mechanical source s of power for increasing the productivity. Indian tractor industry, comparatively young by world standards have expanded at a spectacular pace during last four decades. Consequently it now occupies a pla ce of ride in India s automobile industry. U.S.A., U.S.S.R. and only a few Weste rn European countries exceed the current production of tractors in India, but in terms of growth India s growth is unmatched even with countries of long history of tractor manufacturing.

The spectacular achievement reflects the maturity and dynamism of tractor manufa cturers and also the policies adopted by the government to enable it to effectiv ely meet the demand. The tractor industry in India has made a significant progre ss in terms of production and capacity as well as indigenisation of technology. It is a typical sector where both imported technology and indigenous developed t echnology have developed towards meeting the overall national requirements. The global spotlight on tractors manufacturers certainly in terms of volume seems to be swinging away from the USA, UK and Western and Eastern Europe towards India where growth in the number of producers and the total volume in recent years hav e been impressive. In India tractor industry has played a vital role in the deve lopment. India s gross cropped area is next only to United States of America and Russia a nd long with fragmented land holdings has helped India to become the largest tra ctor market in the world. But it drops to eight position in terms of total tract or in use in the country when compared to international figures, only 3% of tota l tractors used all over the world . It is to be noted that while the overall au tomobile industry is facing recession the tractor industry is growing at 9%.Abou t 20% of world tractor production is carried out in our country only. The arable land in India is high as 12% of the total arable land in the world. Tractor mar ket in India is about Rs 6000 crore. On an average around 400000 tractors are pr oduced and their sale is 260000.Uttar Pradesh is the largest tractor market in o ur country. One out of every four tractor is being Purchased here. Indian tracto r market has to be viewed considering its position in the world with respect to key parameters as given below

2. HISTORY 1945 to 1960 War surplus tractors and bulldozers were imported for land reclamat ion and cultivation in mid 1940 s. In 1947 central and state tractor organizatio ns were set up to develop and promote the supply and use of tractors in agricult ure and up to 1960, the demand was met entirely through imports. There were 8,50 0 tractors in use in 1951, 20,000 in 1955 and 37,000 by 1960. 1961 to 1970 Local production began in 1961 with five manufacturers producing a total of 880 units per year. By 1965 this had increased to over 5000 units per year and the total in use had risen to over 52,000. By 1970 annual production had exceeded 20,000 u nits with over 146,000 units working in the country. 1971 to 1980 Six new manufa cturers were established during this period although three companies (Kirloskar Tractors, Harsha Tractors and Pittie Tractors) did not survive. Escorts Ltd. beg an local manufacture of Ford tractors in 1971 in collaboration with Ford, UK and total production climbed steadily to 33,000 in 1975 reaching 71,000 by 1980. Cr edit facilities for farmers continued to improve and the tractor market expanded rapidly with the total in use passing the half million mark by 1980. 1981 to 19 90 A further five manufacturers began production during this period but only one of these survived in the increasingly competitive market place. Annual producti on exceeded 75,000 units by 1985 and reached 140,000 in 1990 when the total in u se was about 1.2 million. Then India - a net importer up to the mid-seventies became an exporter in the 1980s mainly to countries in Africa.

1991 to 1997 Since 1992, it has not been necessary to obtain an industrial licen se for tractor manufacture in India. By 1997 annual production exceeded 255,000 units and the national tractor population had passed the two million mark. India now emerged as one of the world leaders in wheeled tractor production. 1997 to 1999 Five new manufacturers have started production since 1997. In 1998 Bajaj Te mpo, already well established in the motor industry, began tractor production in Pune. In April of the same year New Holland Tractor (India) Ltd launched produc tion of 70 hp tractors with matching equipment. The company is making a $US 75 m illion initial investment in a state of the art plant at Greater Noida in Uttar Pradesh state with an initial capacity of 35000 units per year. Larsen and Toubr o have established a joint venture with John Deere, USA for the manufacture of 3 5-65 hp tractors at a plant in Pune, Maharashtra and Greeves Ltd will produce Sa me tractors under similar arrangements with Same Deutz-Fahr of Italy. Looking to South American export markets Mahindra and Mahindra are also developing a joint venture with Case for tractors in the 60-200 hp range. Total annual production was forecast to reach 300,000 during the following year. 1999 to Present Facing market saturation in the traditional markets of the north west (Punjab, Haryana, eastern Uttar Pradesh) tractors sales began a slow and slight decline. By 2002 sales went below 200,000. Manufacturers scrambled to push into eastern and south ern India markets in an attempt to reverse the decline, and began exploring the potential for overseas markets. Sales remained in a slump, and added to the mark et saturation problems also came increased problems of "prestige" loan defaults, where farmers who were not financially able took tractors in moves to increase their familys prestige. There are also reported increased misuses of these loans for buying either lifestyle goods, or for social functions. Government and priva te banks have both tightened their lending for this sector adding to the industr y and farmers woes. By 2004 a slight uptick in sales once again due to stronger and national and to some extent international markets. But by 2006 sales once ag ain were down to 216,000 and now in 2007-08 have slid further to just over 200,0 00.

FOREIGN COLLABORATION Tractor industry along with others benefited from this policy which allowed free inflow of foreign technology .The manufacture of tractors started in India main ly with the help of foreign collaboration secured from internationally reputed c ompanies from the USA, UK, USSR, WESTGERMANY, POLAND ,CZECH SLOVAKIA . Most of t he models which were taken up for manufacture in India were developed overseas. Soon after the decision for the manufacture of tractors was made during second p lan, government approved number of foreign collaboration agreements. The establi shment and present status of tractor industry owes a great deal to the support r eceived by the Indian entrepreneurs from foreign collaboration during the initia l phase of manufacture Manufacturer Eicher Tractors Ltd Gujrat Tractors Ltd TAFE Escorts Ltd Mahindra & Mahindra Escorts Tractors ltd Hindustan Machine Tools Ki rloskar Tractors ltd PanjabTractors ltd Pittle Tractor Ltd Harsha Tractors ltd A uto tractor Ltd Pratap Steel Rolling Mill VST Tillers United Auto tractor Ltd As ian tractor Ltd Bajaj Tempo ltd International Tractors Larson & Tubro Ltd New Ha lland Tractors Greaves Ltd Collaborator Gebr,Eicher Tractor,West Germany Motokov -Praha,Czechoslovakia Messey ferguson,UK Moloimport Arazawa Zaklady Mechaniczne, Ursus Poland International harvestor,UK Ford UK Motokov-Praha,Czechoslovakia Kl ochner-Humboldt Deutz.Germany CEMRI.INDIA Own Know how Moto Import,Rassia Britis h Leyland,UK Own Know how Mitsubishi,Japan Jznina tractorul,Romania Own Know how Own Know how Own Know how John Deere US New Halland Tractors,Italy Same Deutz F har, italy Year 1961 1963 1961 1964 1965 1971 1971 1974 1974 1974 1975 1981 1983 1983 1986 1989 1987 1998 1999 1999 1999

3. INDIAN TRACTOR MARKET OVERVIEW The tractor penetration level in India is very low as compared to the world stan dards. Also the penetration levels are also not uniform throughout the country. While the northern region is now almost saturated in terms of new tractor sales, the southern region is still under penetrated. The medium horse power category tractors, 31-40 HP are the most popular in the country and fastest growing segme nt. There are currently 14 players in the industry. Mahindra & Mahindra is the l eading player in the industry. Monsoon season is a key driver for sales of tract ors. A series of good or bad monsoon can affect the sales. In recent years the i ndustry has registered a good growth in sales, both domestic as well as exports. This is also partly because of the initiative of the government to boost up agr iculture and agricultural machinery industry. Tractor industry has made a steady and satisfactory progress even in drought areas. Description Available land Irrigated area Tractors in use Units Mn Hector Mn Hec tor Tractors/1000 Hectors World total/Avg 1444 249.6 28 India 170 45.8 10.5 Indi a Rank 2 2 8 (Source: http://www.scribd.com/doc/36537001/Tractor-Industry-in-India) The tractor industry reported a strong 28.3% growth in sales volumes during 2009 -10, thereby ending the phase of cyclical correction that had pulled down tracto r sales during the preceding two years (2007-09). Significantly, the revival of 2009-10 happened despite the drought-like conditions in many States during the k harif season dampening sentiments. The key factor enabling the demand growth of 2009-10 was strong rural liquidity, which in turn was sustained by several facto rs, including: higher minimum support price (MSP) for crops; greater ability of farmers to make cash purchases (including the usage of Kisan Credit Card which a re increasingly being used to part-finance tractor purchases); enhanced employme nt opportunities (with rural employment schemes being implemented by the Governm ent of India); an improved credit environment; and continuance of replacement de mand.

These factors apart, non-agricultural use of tractors (for haulage in constructi on and infrastructure projects) continued to increase, benefiting tractor demand . Also, with infrastructure projects and rural employment schemes increasing emp loyment opportunities, availability of labour for agricultural activities contin ued to decline, persuading even farmers with medium-sized land holdings to eithe r rent or purchase tractors. On a regional basis, the performance of the eastern , northern and western parts of the country was robust during 2009-10 in terms o f tractor demand, while that of the southern region was moderate. A strong growt h in tractor volumes, albeit on a low base, was witnessed in the eastern States, including Bihar, Orissa and Jharkhand, which had a good paddy crop. Tractor vol umes in the northern and western regions also reported strong growth during 2009 -10, especially in the second half (H2) of the year, benefiting from a low base (H2, 2008-09) and a satisfactory kharif crop in some States. The southern region reported moderate performance in terms of tractor demand (growth of 11.9% in 20 09-10), being impacted largely by the de-growth in Andhra Pradesh (AP)a key south ern market where rainfall was irregular in 2009-10. However, in Karnataka and Tam il Nadu, higher MSPs for rice along with some revival of interest of public sect or banks (PSBs) in tractor financing led to strong tractor sales volumes. Histor ically, tractor demand has been fairly volatile, being influenced by cyclical tr ends, availability of finance, and crop patterns (monsoon). After four years of strong growth during 2003-07, the fiscal years 2007-08 and 2008-09 both reported a marginal decline in tractor sales volumes, largely reflecting cyclical correc tions. In addition to the cyclical dips, during H2, 2008-09, the industry also h ad to cope with the liquidity crunch, which pushed up interest rates, even as fi nanciers resorted to more stringent lending norms in the face of rising non-perf orming assets (NPAs). However, the situation improved during 2009-10 as credit a vailability improved on the strength of greater liquidity in the banking system. While tractor financing has traditionally been done by PSBs, of late, private b anks and non-banking finance companies (NBFCs), despite their higher interest ra tes vis--vis the PSBs, have been able to increase their penetration of this marke t on the strength of faster loan processing and use of more liberal credit norms . Overall, with tractor demand being closely linked to agricultural output, growth in farm mechanisation and farmers remuneration, the long-term demand drivers for the industry remain robust. The currently low levels of tractor penetration in India, strong Governmental focus on availability of finance for agriculture mech anization tools and on rural development, increase in the use of tractors for no n-agricultural purposes, and the growing emphasis on tractor exports augur well for the industry.

The tractor industry reported a compounded annual growth rate (CAGR) of over 20% in volume terms during the period 2003-07. The long up-cycle in demand was supp orted by several factors, including excise duty exemptions on tractors (2004-05) , thrust on rural development, improved availability of finances for tractor pur chase, and low interest rates. The growth also came on a low base, with the prec eding three fiscal years (2000-03) having witnessed a prolonged phase of volume correction. The cyclical correction during 2000-03 had been aggravated by the bu ild-up of channel inventory with the major players having pushed aggressively fo r larger sales. In contrast to this phase of cyclical slowdown, the one that hap pened during 2007-09 was less severe, with volumes declining by around 3%, despi te the intermittent tightening of the liquidity situation during H2, 2008-09. Th e demand slowdown during H2, 2008-09 also impacted the profitability of the orig inal equipment manufacturers (OEMs), that is, the tractor manufacturers, because of the high price inventory they were carrying. However, the situation improved on the cost structure front in H1 2009-10 with the softening of commodity price s preparing the ground for the industry to earn higher profitability margins. Th e pickup in volumes also lowered the overhead expenses for the tractor manufactu rers, boosting their profitability. While the OEMs did not lower the listed sale s price of tractors, the benefit of lower steel prices was passed on to the end customers via discounts. This is an accepted practice in the industry; given tha t once prices are lowered it is difficult to raise them subsequently. However, d uring H2 2009-10, the tractor majors increased the prices with the reversal of c ommodity prices and the discounts have also come down. Capacity utilisation in t he tractor industry had hit a low during 2002-03, following large capacity addit ions and a volume slump. After that, capacity utilisation improved steadily, but remained moderate at around 50% during 2008-09. In 2009-10, the tractor volume growth has helped the OEMs improve their capacity utilizations; however, there i s still excess capacity in the industry. Thus, over the medium term, most tracto r manufacturers would not need to make any significant capital investments in bu ilding capacities. As discussed, the domestic tractor industry has to cope with demand volatility on account of cyclical trends and the strong linkages it has w ith agricultural production and monsoon rains. Many of the industry players have thus diversified into related products, including generator engines and cranes, besides focusing more on exports, to gain some insulation against the volatilit y in domestic tractor demand. As for tractor exports, while a major part of that currently goes to USA, the OEMs are now exploring various other markets across Europe, Asia and Africa for future exports.

i) INDUSTRY TRENDS BY REGIONS The biggest markets for the tractor industry include States like Uttar Pradesh ( UP), Andhra Pradesh (AP), Madhya Pradesh (MP), Rajasthan, and Maharashtra, which together accounted for around 50% of the total tractor sales in India during 20 09-10. The tractor industry witnessed a strong y-o-y growth of 28.3% during 2009 -10, with most of the States reporting positive growth during the year. Trend in Tractor Sales across regions The northern region remains the largest tractor market in India with sales of ar ound 1,67,000 units as of 2009-10. This region reported a growth rate of 35.7% i n volume sales in 2009-10 over the previous fiscal, with the key contributors in cluding UP, Punjab, Haryana and Rajasthan. The northern region benefited from hi gher MSPs (for crops), limited availability of labour (forcing higher mechanisat ion), and increasing non-agricultural use of tractors.

Additionally, increased infrastructure development activities (especially highwa ys) led to appreciation in land values and use of tractors for non-agricultural purposes. In some cases, farmers also received compensation for the Governments a cquisition of select land patches (adjoining highways), which increased the avai lability of cash with them. Feedback from industry players suggests cash purchas es (including purchases using Kisan Credit Card) in some northern States increas ed to 35-40% of the total tractor volumes in 2009-10 from 1015% in the past. Tre nd in Tractor sales across States Tractor volumes in UP grew by 42.7% during 2009-10, with H2, 2009-10 reporting p articularly strong growth (around 51% y-o-y) mainly on the back of high sugarcan e prices for the kharif crop and improved irrigation facilities. In the case of Punjab, tractor volumes remained strong for the fifth straight year in 2009-10 ( y-o-y growth of 42%). In Rajasthan however, growth in tractor volumes was relati vely subdued in 2009-10 (around 24% y-o-y) as compared with the figure for the n orthern region as a whole. Tractor sales in Rajasthan were especially low in H2, 2009-10 versus H1, 2009-10, due to lower kharif output on account of deficient rains and inadequate financing availability.

In the eastern region, tractor volumes continued to report strong growth in 2009 -10, albeit on a small base, and went up by 53.8% over 2008-09, being driven mai nly by the higher MSPs announced for paddy. Within the region however, many fina nciers remained reluctant to finance tractor purchases in some States like Bihar . Nevertheless, in Bihar, tractor volumes grew 66% over 2008-09 to around 29,000 units in 2009-10, thereby accounting for over 50% of the total sales in the eas tern region. The Bihar market, where tractor penetration had been low historical ly, has shown sustained growth over the last few years and become one of the imp ortant markets for the tractor industry. Overall, in the eastern region, growth in tractor volumes is expected to moderate, going forward, as the benefit of a l ow base get diluted gradually. The western region reported sales of around 92,00 0 tractor units during 2009-10a growth rate of 35.7% over the previous fiscalbenef iting particularly from the strong performance that Maharashtra, Gujarat and MP posted during H2, 2009-10 (55% y-o-y growth over H2, 2008-09). The factors contr ibuting to the strong growth in the region during H2, 2009-10 included a benign base effect, higher crop prices (of sugarcane and cotton in Maharashtra, and of cereals and soyabean in MP), and greater availability of retail finance. The performance of the southern region in terms of tractor sales was relatively modest during 2009-10, with the growth rate being around 11.9% over the previous fiscal. While most States in the region reported healthy growth, AP, which is t he largest tractor market in the south, de-grew by 10.4% in 2009-10. ii) INDUSTRY TRENDS BY STATE Punjab, Uttar Pradesh and Haryana were the first States to benefit from the Gree n Revolution and hence have traditionally accounted for most of the tractor sale s. However, given the high penetration of tractors in these Northern States, the geographical concentration of tractor sales is gradually shifting to the Wester n and Southern States of the country. States like Gujarat, Andhra Pradesh and Ma dhya Pradesh have reported significant increases in tractor volumes over the pas t three years. This trend is continuing in the current fiscal also, as the inten sity of tractorisation in North India is quite high already. Table 5 depicts the distribution of tractor sales in the country in the first quarter of the curren t fiscal vis-a-vis the like period previous year.

The biggest markets for the tractor industry include States like Uttar Pradesh ( UP), Andhra Pradesh (AP), Madhya Pradesh (MP), Rajasthan, and Maharashtra, which together accounted for around 50% of the total tractor sales in India during 20 09-10. The tractor industry witnessed a strong growth of 28.3% during 2009-10, w ith most of the states reporting positive growth during the year. The performanc e of the southern region in terms of tractor sales was relatively modest during 2009-10 with the growth rate being around 11.9% over the previous fiscal. While most States in the region reported healthy growth, AP, which is the largest trac tor market in the south, de-grew by 10.4% in 2009-10. The market shares of the t op four players in the Indian tractor industry did not change much during 2009-1 0 in comparison with 2008-09. M&M remained the market leader with around 41.1% m arket share, followed by TAFE with a market share of around 22%, Escorts with ar ound 12.1% and International Tractors (ITL) with around 8.9%. Trend in State wise market share

The Indian tractor industry has around 13 national players and a few regional pl ayers. The industry is dominated by Mahindra and Mahindra (M&M) with a market sh are of around 41.1%, followed by Tractors and Farm Equipments TAFE, which holds around 22% of the market. The other major players include Escorts (12.1%), L&T-J ohn Deere (7.8%), and International Tractors Limited (8.9%). During the last few years, the industry has seen some consolidation with M&M acquiring Punjab Tract ors (PTL) and TAFE acquiring Eicher Tractors. Most of the tractors sold in India are in the 21-50 HP range, with the 31-40 HP category alone accounting for arou nd 50% of this. The tractor industry reported a strong 28.3% growth in sales vol umes during 2009-10, thereby ending the phase of cyclical correction that had pu lled down tractor sales during the preceding two years (2007-09). Significantly, the revival of 2009-10 happened despite the drought-like conditions in many Sta tes during the kharif season. The key factors enabling the demand growth of 2009 -10 were, 1. 2. 3. 4. 5. 6. 7. 8. 9. Strong rural liquidity Higher Minimum Suppo rt Price (MSP) for crops Greater ability of farmers to make cash purchases Enhan ced employment opportunities Improved Credit environment Continuance of replacem ent demand Non-agricultural use of tractors Change in product mix Distribution n etwork

iii) REGION-WISE MARKET SHARE OF MAJOR PLAYERS The market shares of the top four players in the Indian change much during 2009-10 in comparison with 2008-09. leader with around 41.1% market share, followed by TAFE round 22%, Escorts with around 12.1%, and International nd 8.9%. tractor industry did not M&M remained the market with a market share of a Tractors (ITL) with arou

M&M remains particularly strong in the southern region (50.4% market share durin g 200910). However, L&T John Deere (LT-JD) was able to increase its market share in the region by around 250 bps in 2009-10, mainly at the expense of M&M (marke t share down by 140 bps) and Escorts (down by 140 bps). In the western region to o, LT-JD performed well in 2009-10, increasing its market share by 190 bps, even as TAFE lost market share by around 90 bps there. In the northern region, where M&M has been traditionally weak, the company increased its market share by 140 bps during 2009-10, even as ITL and Escorts lost market shares by around 90 bps and 60 bps respectively, there. In the eastern region, M&M was able to raise its market share by around 140 bps in 2009-10 at the expense of Escorts and TAFE.

iv) INDUSTRY TRENDS BY TRACTOR HORSE POWER (HP) Tractors can be classified into four different categories. The sales of tractors with engine power below 20 HP have been very small in the past, and their share of the total sales is currently insignificant. The following table presents the shares of the different tractor segments in the total sales. The four segments in the Indian tractor market are discussed here. 21-30 HP: The share of this seg ment in total tractor sales declined from 34% in 1989-90 to 23% in 2003-04. Thes e tractors are suitable for the soft soil conditions in the Northern States like Punjab, Haryana and Uttar Pradesh. However, with the penetration rates in these States increasing, the demand for tractors in this segment has declined. These tractors are used primarily for agricultural applications. 31-40 HP: This segmen t accounted for 49% of all tractors sold in 1989-90 and for 50% in 2003-04. The soil in the Western and Southern regions of the country is relatively hard and h ence farmers here prefer using tractors of 31-40 HP. This segment dominates the Indian tractor market and has grown at the expense of the small HP segment (21-3 0 HP). The reasons for this are the low price differential between the small and medium segment tractors. 41-50 HP: This segments share increased from 15% in 198 9-90 to 21% in 2003-04. With the increasing shift towards modern farming methods , sales of tractors in this segment may witness an increasing pace of growth in the coming years. Farmers with large land holdings prefer these tractors. Above 50 HP: This segments share increased slowly but steadily from 2% in 1989-90 to 7% in 2003-04. Above 50 HP tractors are not only used for agricultural application s, but also serve as a mode for haulage and transportation. The >51 HP segment o f the Indian tractor market also underperformed the industry growth rate in 2009 -10 mainly because of the decrease in the exports which is a key demand area for these high HP tractors. Over the past 10 years, there has been a perceptible sh ift away from the 21-30 HP segment towards the higher segments. The larger tract ors can prove more economical for bigger land holdings. In the case of a 35-40 H P tractor, the hourly diesel consumption is around 3.5 litres. The same goes up to 4.5 1itres for a 50 HP tractor and to 7.5-8 litres for a 70 HP tractor. But i n an hour, the 35-40 HP tractor can cover only 2.5-3 acres, compared with 5 acre s for the 50 HP and 9-10 acres for the 70 HP tractor. So, higher the HP, better the overall fuel efficiency. However, the high cost of the larger tractors and t he low average size of land holdings in India constrain the utility of the large r tractors.

The Indian tractor market has traditionally been a medium HP market, with 31-40 HP tractors accounting for around 47% of the total industry volumes. In 2008-09, the 31-40 HP category had reported sales of 157,602 tractor units, which was ab out the same as the previous years figure but lower than the 2006-07 statistic by 7%. In 2009-10 however, this category reported a strong revival, with the volum e growing by 22%2 over 2008-09; the revival was led by UP, Karnataka and Madhya Pradesh. The other major segment in the Indian tractor market is the 41-50 HP range, whic h accounts for around 23% of the total industry volumes. This segment grew by ar ound 10% during 2009-10, thereby underperforming the growth in overall tractor v olumes (around 19%) that year. The main reason for this underperformance was the low growth that the southern region, the biggest market for this segment, repor ted in 2009-10.

4. MARKET CONCENTRATION Market concentration in tractors industry is fairly high with top two players, M & M&M (including Punjab Tractors) and TAFE accounting for 63 per cent of the mar ket in 2007 2007-08. Market concentration increased over the past 4 years due to the acquisition of Eicher tractors by TAFE in 2005-06 and PTLs acquisition by M& M in 2006 06 2006-07. i) MARKET CAPITALISATION IN TERMS OF VOLUME Market share of the major player PTL VS Tiller Escorts Force 3% 0% 9% 5% PTL 7% VS Escort Force Tiller s 3% 0% 3% HMT 16% PTL VS Tiller Escorts 0% 6% 4% Force 2% HMT 14% HMT 24% M&M 59% M& M 71% M&M 74% 2005 VS Escorts PTL Tiller 3% Force 6% 0% 1% HMT 22% M&M 68% PTL 4% 2006 VS Escorts Force Tiller 3% 1% 1% HMT 16% VS Escorts Tiller 4% 1% 2007 Force 1% HMT 14% M&M 75% M&M 80% 2008 2009 2010 As it seen from the above graph of market capitalisation, Mahindra and Mahindra has become the giant in tractor industry over the last few years and has capture d the market upto 80% of the total segmental industry.

ii) MARKET CAPITALISATION IN TERMS OF TURN OVER MARKET CAPITALISATION 35000 30000 Escorts M&M Force PTL HMT VS Tiller Rs in Crores 25000 20000 15000 10000 5000 0 2005 2006 2007 2008 2009 2010 Year In the long run, Mahindra & Mahindra is expected to remain the leader in the tra ctor industry due to well diversified product mix, strong pan India presence, co st cost-efficient operations and rising global sales. Now, post acquisition of P unjab Tractors, its leadership post-acquisition has become stronger. In total, i t commands a 38 per cent market share. er. iii) MARKET CAPITALISATION IN TERMS OF SALES Sales Value 5000 Sales in Rs. Crore 4000 3000 2000 1000 0 Escorts ITL John Deer Company M&M TAFE 2005 2008 2006 2009 2007

Sales In Quantity 140000 120000 100000 80000 60000 40000 20000 0 Escorts ITL John Deer M&M TAFE 20 05 2007 2009 2006 2008 The key success factors for the players will continue to include diversified pro duct portfolio, nation-wide distribution strength and cost competencies. The rel ative ranking of players based on market share will remain stable with increasin g polarisation of market position between stronger and marginal players. After t he acquisition of Eicher Motors tractor division, TAFE has emerged a strong numbe r two in the industry with better product portfolio and distribution network (al though overlapping may cause some loss of share). TAFEs share went up to 28 per c ent after its acquisition of Eicher Escorts and International Tractors, with a m arket share of 14 per cent and 10 per cent, respectively, are expected to remain strong competitors in the medium-to-long term. International Tractors is expect ed to maintain its share as it would not be able to grow at higher than industry growth rate. Global players like John Deere and New Holland India are likely to provide strong competition to the other well established players in the coming years as they strengthen their Indian product portfolio and distribution network and remain major exporters. Smaller players like Force Motors, VST Tillers and HMT are likely to be marginalized further in the long run due to lack of diversi fied product portfolio, poor nation-wide distribution network and weakness in co st structure.

5. TRACTOR INDUSTRY IN TERMS OF FINANCIALS i) P/E RATIO The P/E ratio is the ratio of market value of share to the Earning per Share (EP S) The graph below indicates the performance of major players in tractor industr ies in India via P/E ratio. In 2009, due to recession, the market value of share has reduced drastically from Rs. 342 to Rs. 131.00. It indicates that the retur n on investment is higher as compared to the previous year with respect to marke t value of the share. P/E RATIO 700.00 600.00 500.00 400.00 300.00 VS Tiller HMT PTL Force M&M Escorts P/E 200.00 100.00 0.00 -100.00 -200.00 -300.00 -400.00 2005 2006 2007 2008 2009 2010 YEAR ii) EARNINGS PER SHARE This is an important ctly proportional to of major players in increase in trend in omic slowdown) financial indicator for investors in the market. It is dire the profitability of the company. The graph below shows EPS tractor Industry in India. It is observed that there is an EPS value except for year 2009-10. (this is because of econ

EARINGS PER SHARE 150.00 Escorts HMT PTL Force M&M VS Tiller 100.00 50.00 RS. 0.00 2005 -50.00 2006 2007 2008 2009 2010 -100.00 YEAR iii) PAT (PROFIT AFTER TAX) In accounting, profit is the difference between price and the costs of bringing to market whatever it is that is accounted as an enterprise (whether by harvest, extraction, manufacture, or purchase) in terms of the component costs of delive red goods and/or services and any operating or other expenses. 2200 PAT Escorts Force M &M HMT TAFE ITL VST Tillers John Deer 1700 Rs Crores 1200 700 200 -300 2005 2006 2007 2008 2009 2010 YEAR

The net income generated by company is very important because the sales income a nd the income from investments represent the net income. The net profit of the c ompany is the PAT. From the Graph-I below it is seen that M & M has stead y incr ease in its income which is a good sign. PAT is also good performance indicator which directly correlates to the Earnings per Share (EPS). Being the market leader in tractor industry sector, Mahindra and Mahindra has ma intained the growth over the period of times. Thus M & M is the major player in tractor industry in India and also the major profit earner.

6. EXPORTS Indian tractor manufacturers have been increasingly targeting the international markets over the last few years. The industry exported a total of around 37,900 tractors during 200910, with the USA, Africa, South America, and some Asian coun tries being the top destinations. The industry leader, Mahindra and Mahindra (M& M), has acquired Yancheng Tractors, the fourth largest tractor manufacturer in C hina (in terms of FY2008 volumes), to improve its presence in the country. In th e developed markets, Indian tractors have a relatively marginal presence, with s ales being largely restricted to the hobby farming segment. Tractor exports from India grew at a CAGR of 36 % from 2005-06 to 2009-10. Aroun d 60 % (in 2005-06) of these exports were to the US mainly driven by an increase in hobby farming in the country. Exports to other countries such as South Asian countries, Malaysia, Turkey and Africa are estimated to have been growing fast as well. In year 2006-07, over 50 % of exports were to non US destinations.

7. SOME LONG TERM DEMAND DRIVERS FOR THE INDUSTRY Low penetration of tractors in Indian agriculture: Indian agriculture is charact erised by low farm mechanisation, fragmented land holdings, and high dependence on monsoon rains (in the absence of adequate irrigation facilities). Tractor pen etration in India is low at around 13 tractors per 1,000 hectares as against the global average of 19 and the US average of 29. While this does indicate the rel ative backwardness of Indian agriculture, it also points to the significant scop e that exists for raising tractor penetration, which bodes well for tractor dema nd over the long term. Government support for the agricultural sector: Although agriculture contributes just around 20% to Indias GDP, it provides employment to a large rural population, which is why the sector remains a strong focus area fo r the Government. The tractor industry benefits significantly from the Governmen tal focus on agriculture, with measures such as nil excise duty on tractors (eve n the excise duty on tractor parts has been lowered from 16% to 8%) and inclusio n of tractor financing under priority sector lending (by PSBs) serving as longte rm demand drivers. Financing of tractor purchase is of great significance for th e industry, it being a key demand facilitator. Export of tractors: Indian tracto r manufacturers have been increasingly targeting the international markets over the last few years. The industry exported a total of around 37,900 tractors duri ng 2009-10, with the USA, Africa, South America, and some Asian countries being the top destinations. The industry leader, Mahindra and Mahindra (M&M), has acqu ired Yancheng Tractors, the fourth largest tractor manufacturer in China (in ter ms of FY2008 volumes), to improve its presence in the country. In the developed markets, Indian tractors have a relatively marginal presence, with sales being l argely restricted to the hobby farming segment.

8. FUTURE GROWTH IN TRACTOR INDUSTRY Tractor sales are expected to remain healthy in fiscal 2010-11, given the good r abi crop this time around, the continuing firmness in the prices of agricultural products, and the healthy monsoons anticipated during the coming kharif season. Moreover, improving farm mechanisation levels (with labour availability in rura l areas declining), increasing nonagricultural use of tractors, higher credit di sbursements for agriculture, and sharper Governmental focus on the farm sector ( larger budgetary allocations) are also expected to encourage tractor sales. The industrys profitability is however expected to remain moderate in the medium term , considering the high competitive intensity and low capacity utilisation levels , although larger players could benefit from scale economics. As for margins, wh ile they have seen an improvement in 2009-10, they would remain vulnerable to ad verse changes in commodity prices. While some States in the northern region have achieved high levels of tractor pe netration and farm mechanisation, on an all-India basis, the penetration remains low, which along with the current shortage of farm labour and consequently risi ng labour costs, may be expected to lead to greater mechanisation and use of tra ctors. The long-term prospects for the Indian tractor industry hinge on agricult ural growth and Government support in areas such as financing availability, tax exemptions, and fiscal stimulus for rural development. Overall, ICRA expects the long-term growth rate for the Indian tractor industry to trend around the histo rical average of 6-8%, supported by increasing tractor penetration.

9. REFERENCES 1. http://www.scribd.com/doc/30045927/Opinion 2. CMIE Database 3. www.bseindia.c om 4. www.scribd.com 5. www.icfa.com 6. www.moneycontrol.com 7. www.thehindu.com