Two of India’s largest tractor makers and at least one motorcycle company expect sales of tractors and entry-level motorcycles to slow this year, signalling imminent stress for the auto industry in the rural areas that may spread to other sectors if the monsoon is poor, company executives and analysts said.
Mumbai-based Mahindra and Mahindra Ltd estimates 5% growth in its tractor sales volumes in FY27 compared with a 20% increase to 446,948 units in the previous fiscal year. Faridabad-based Escorts Kubota Ltd expects a 2-3% decline in tractor sales this fiscal after a 30% growth to 114,468 units in FY26.
Tractor sales in India grew 19% to 1.05 million in FY26, according to the Federation of Automobile Dealers Associations (Fada).
The commentary from the companies suggests that consumption demand can slow in rural India this year due to the impending impact of a below-average monsoon, which can spread to other sectors, including fast-moving consumer goods (FMCG).
The overall guidance for FY27 is 2-3% up or down, Neeraj Mehra, chief officer of the tractor business division at Escorts Kubota, said on an earnings call on 7 May.
“We will see growth this year in this quarter. And then this growth will, to a certain extent, taper down. And H2 (second half) would be a substantial negative growth because the base is very, very high. Also, the impact of the monsoons wherein the forecast has been a subnormal monsoon this year. So, the impact will also come in H2,” Mehra said.
Privately held tractor makers Tafe Ltd and International Tractors Ltd do not put out any growth guidance.
The India Meteorological Department has predicted a below-average monsoon in the country this year, which is expected to affect the rural economy. Moreover, inflation in vehicle prices following the West Asia war has dampened the outlook.
Pockets of growth
Mahindra and Mahindra struck a more optimistic note by suggesting there are pockets of growth that can aid any positive momentum, but the overall growth rate will be lower than last year.
A large share of sales – 35-40% – happens in the first half and that’s where the growth opportunity will be because of the relatively low base last year, Rajesh Jejurikar, executive director and chief executive-auto and farm business, at Mahindra and Mahindra, said on a 5 May earnings call.
Moreover, Mahindra expects that markets like Uttar Pradesh are better placed on irrigation and reservoirs, so the impact of the monsoon will be lower.
The comments from the tractor makers coincided with those by Bajaj Auto on sales of entry-level motorcycles slowing down. A large share of buyers of these motorcycles in the 75-110 cc segment is from the rural areas and tier-2 and 3 markets.
“The motorcycle industry, which was growing at 20%, grew only by 9% in April and that is an indication,” Rakesh Sharma, executive director at Bajaj Auto, said during a press briefing on 6 May. He noted that the 9% growth in April hides the “very sharp difference” between sales at the entry level and other segments of the market.
Tractors to be impacted
Two-wheeler maker Hero MotoCorp and top carmakers Maruti Suzuki and Hyundai Motor India have not flagged any signs of stress in the rural market in their earnings commentaries. Analysts said the slowdown in the rural market is expected to directly affect tractor makers the most.
“The rising uncertainty regarding rainfall this year will impact rural market sentiment, thereby impacting short-term tractor demand and rural vehicle demand, which has been on a strong growth path since the covid-19 pandemic,” Incred Equities wrote in a 6 May note.
Analysts at Nuvama Institutional Equities said in a 7 May note that they expect a slowdown in sales of Escorts Kubota owing to a broader slowdown in the tractor industry, citing three reasons.
“We forecast a decrease of 3% in domestic tractors for Escorts owing to high base as sales have been in an uptrend since FY23, reduction in tractor subsidies, especially in Maharashtra, and below-normal rainfall season,” Nuvama said in the note.