- Indian tractor industry growth forecasted at 0-2% CAGR for FY26-28 due to weak monsoon and El Nino
- HSBC trims Mahindra & Mahindra volume estimates but maintains Buy rating with revised target of Rs 4,150
- Escorts Kubota retains Hold rating with a slightly lowered target price at Rs 3,600 amid steady demand
The Indian tractor industry could be headed for a subdued growth phase over FY26-FY28, with HSBC Global Investment Research flagging a weak monsoon outlook and the onset of El Nino as key headwinds. HSBC now estimates tractor industry volumes to grow at a muted 0-2% CAGR over FY26-28. This comes on the back of a high base, including a robust 21% growth in FY26, which limits the scope for further expansion.
Despite trimming volume estimates for Mahindra & Mahindra by 5-7% for FY27 and FY28, HSBC maintains a Buy rating on the stock with a target price of Rs 4,150 (revised from Rs 4,250). The brokerage argues that M&M's diversified business mix and strong execution - including a 39% EBIT margin in its farm equipment segment in 9MFY26 - should limit earnings downside from softer tractor volumes.
Escorts Kubota also retains a Hold rating, with HSBC raising its target price to Rs 3,600 from Rs 3,700 earlier, citing steady replacement demand and operational resilience.
Historically, El Nino years - and often the year after - have coincided with softer tractor volumes, given their close linkage to rural cash flows and farm output. The brokerage stops short of turning bearish, citing supportive reservoir levels and steady replacement demand as buffers.
Reservoir Levels Offer Support
Current reservoir levels are about 24% above the long-term average, which could help mitigate the impact of a weaker monsoon. Elevated water reserves are particularly beneficial during the rabi sowing season (October-November), potentially stabilising demand.
In addition, replacement demand is expected to remain strong. Tractors sold during the FY09-FY14 cycle are now entering their replacement phase, providing structural support. HSBC notes that replacement demand accounts for nearly 45% of total tractor sales, cushioning downside risks.
Long-term penetration trends also remain favourable. India's five-year rolling CAGR in tractor sales stands at about 4-6%. With tractor penetration at roughly 7% of total agricultural land parcels and around 47% of eligible farming households (those owning more than two hectares), the brokerage sees scope for further expansion over time.
Regional Dynamics: A Mixed Picture
Regionally, reservoir levels are above long-term averages in most parts of the country - North (+42%), West (+34%), South (+26%), Central (+22%) and East (+2%).
The northern region, which accounts for nearly 35% of total tractor sales, is better positioned against El Nino risks. However, market leader Mahindra & Mahindra has relatively weaker market share in the North, implying that a strong El Nino could weigh slightly on its share performance.
The broader sector view remains selective. While growth expectations have been moderated, HSBC believes robust reservoir levels and structural replacement demand provide sufficient support to avoid a sharp downturn.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
