Good mon­soon rains boost trac­tor, two-wheeler sales

Con­sumer goods com­pa­nies say re­cov­ery from the rollout of the goods and ser­vices tax and note ban im­pact still elu­sive

Mint Asia ST - - News - BSY HALLY S ETH S OUMYA G UP TA M OHILE &

Agood mon­soon has set the cash regis­ters ring­ing at trac­tor and two-wheeler firms over Navra­tri and Dussehra, mak­ing it the best fes­tive sea­son for some in the past three years.

But con­sumer pack­aged goods firms haven’t seen the de­sired off­take, with a broad-based re­cov­ery from the ef­fects of de­mon­e­ti­za­tion and the goods and ser­vices tax (GST) con­tin­u­ing to elude their chan­nel part­ners.

“An early on­set of the fes­tive sea­son has helped,” said Ra­jesh Je­jurikar, pres­i­dent, farm equip­ment sec­tor, Mahin­dra and Mahin­dra Ltd.

Un­like last year when key Hindu fes­ti­vals of Navra­tri, Dussehra and Di­wali fell in Oc­to­ber, this year the first two were cel­e­brated in Septem­ber.

This added to pos­i­tive sen­ti­ment, spurred by a good mon­soon and a healthy crop yield.

Mahin­dra’s do­mes­tic trac­tor sales in Septem­ber grew 52% to a record 44,000 units over the same month a year ear­lier.

The In­dia Me­te­o­ro­log­i­cal Depart­ment (IMD) on 30 Septem­ber said the mon­soon was 95% of the long-term av­er­age com­pared to its fore­cast of 98%, Reuters re­ported last Satur­day.

Re­spon­si­ble for de­liv­er­ing about 70% of the an­nual rain­fall, the mon­soon sea­son is crit­i­cal for the farm sec­tor that ac­counts for about 15% of In­dia’s $2 tril­lion econ­omy.

A strong sales per­for­mance across all the trac­tor com­pa­nies helped over­all trac­tor vol­umes ad­vance a brisk 50% dur­ing the month, over the last year, said Be­naifer Je­hani, di­rec­tor re­search at Crisil Ltd.

While de­mand is strong, the impressive Trac­tors Cars and util­ity ve­hi­cles Two-wheel­ers sales vol­umes also re­flect the very high lev­els of dis­patches be­ing or­ga­nized by trac­tor firms in or­der to make the most of the fes­tive sea­son, she said.

Trac­tor mak­ers, such as au­to­mo­bile firms, count dis­patches to deal­ers as sales.

“The buildup of stocks at the deal­er­ships is hu­mon­gous in an­tic­i­pa­tion of a good fes­tive de­mand,” she said, adding that she ex­pects some cor­rec­tion in the cur­rent month.

The fes­tive sea­son has been equally impressive for mo­tor­cy­cle and scooter mak­ers

Honda Mo­tor­cy­cle and Scooter In­dia (HMSI) Pvt. Ltd, the sec­ond largest twowheeler maker, has all its fac­to­ries run­ning at peak ca­pac­i­ties. On the first day of Navra­tri, HMSI re­tailed 52,000 scoot­ers and mo­tor­cy­cles.

Cu­mu­la­tively, end­ing with Dusse­hera, it sold a to­tal of 100,000 units in 10 days, said Y.S. Gu­le­ria, HMSI se­nior vice-pres­i­dent 12.1 8.5 4.2 7-9 8.8 12-16 8-10 29 (sales and mar­ket­ing). This is the best for the com­pany in three years. A lot of it was led by an ag­gres­sive net­work ex­pan­sion in ru­ral and semi-ur­ban ar­eas where the de­mand is strong and the com­pany has abil­ity to meet it, he said. HMSI sells four out of ev­ery 10 twowheel­ers in ru­ral mar­kets.

Hero Mo­tocorp Ltd, the two-wheeler mar­ket leader, is equally bullish.

“With close to two weeks still re­main­ing in the fes­ti­val sea­son, we have set an all-time record by sell­ing over a mil­lion mo­tor­cy­cles and scoot­ers in do­mes­tic re­tail sales.in the fes­tive pe­riod so far, fur­ther con­sol­i­dat­ing our mar­ket lead­er­ship,” Ashok Bhasin, head of sales, mar­ket­ing and cus­tomer care at the firm said in an email.

Hero draws half of its to­tal sales from ru­ral mar­kets.

Crisil ex­pects trac­tor sales for the fes­tive months from Septem­ber to Novem­ber to ex­pand by 12-16% from the year-ago pe­riod as the high base ef­fect of the pre­vi­ous fis­cal kicks in.

How­ever, the fes­tive sea­son has been dull so far for mak­ers of oils, sham­poo, soap, choco­lates and other daily con­sum­ables.

Some have flagged the lag­ging ef­fects of de­mon­e­ti­za­tion and the im­pact of the GST rollout on whole­sale chan­nels as ob­sta­cles to ru­ral re­cov­ery.

“The ru­ral mar­ket has been evolv­ing ev­ery year. The re­gion buys more of the gift­ing and pre­mium port­fo­lio of Cad­bury’s choco­lates,” said Hemant Ru­pani, sales di­rec­tor, Mon­delez In­dia Pvt. Ltd, own­ers of Cad­bury.

He added that although sales have been de­cent, they are yet to take off in a big way.

“The whole­sale piece (part of the busi­ness con­ducted via whole­sale chan­nel) has been up­set by the GST,” Ru­pani said, adding that the ru­ral mar­ket per­for­mance “could have been bet­ter” given that a slew of govern­ment schemes to im­prove ru­ral in­fra­struc­ture were ex­pected to boost ru­ral de­mand.

In an in­vestor pre­sen­ta­tion in Septem­ber, In­dia’s largest con­sumer pack­aged goods com­pany, Hindustan Unilever Ltd, said that its growth in ru­ral mar­kets lagged in fis­cal 2016-17—fall­ing be­hind ur­ban mar­kets for the first time since 2011-12.

Cit­ing data from mar­ket re­search firm AC Nielsen, it said con­sumer sen­ti­ment has fallen steadily since 2011-12.

An­a­lysts said a large part of this de­pressed de­mand is the patchy mon­soon and lower kharif crop sow­ing that came right af­ter de­mon­e­ti­za­tion in Novem­ber last year.

Mon­soon rains this year were de­fi­cient by 5% as of 22 Septem­ber, said a re­port by in­vest­ment bank Mor­gan Stan­ley on the same day.

By state, rains were de­fi­cient in some of In­dia’s largest con­sumer mar­kets in­clud­ing Ut­tar Pradesh, Mad­hya Pradesh, and Pun­jab.

Con­se­quently, sow­ing of rice, pulses and oilseeds de­clined by 1-9% year-on-year, it added. All th­ese are ex­pected to im­pact con­sumer de­mand.

In a re­port dated 22 Septem­ber, eq­ui­ties bro­ker­age firm JM Fi­nan­cial had said that th­ese “chan­nel re­lated is­sues”, par­tic­u­larly among whole­salers and in the north and the east, will make ru­ral de­mand re­cov­ery a “more grad­ual af­fair” even though “the end con­sumer is quite obliv­i­ous to th­ese changes”.

Mahin­dra’s Je­jurikar said rain-de­fi­cient states such as Ut­tar Pradesh have good ir­ri­ga­tion cover—as much as 80% and should make up for the short­fall.

There­fore, it’s un­likely to ad­versely im­pact farm out­put. Mahin­dra has main­tained its growth fore­cast of 10-12% for the trac­tor mar­ket for the full year.

shally.s@livemint.com

PHO­TO­GRAPH BY MINT; GRAPHIC BY NAVEEN KU­MAR SAINI/MINT

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