1. Industry Structure and Developments
Your company is manufacturing auto components/parts for tractors and is directly linked
with tractor industry.
Tractor industry plays an important part as agriculture sector has a major contribution
to Indias GDP. There are currently 14 players in the industry. M&M continues to
maintain its market leadership status, constituting about 38% of the total industry
volumes. While M&M largely sustained its market share in Western and Central regions,
it has gained market share in the other markets, benefitting from its strong position and
dealer penetration. TAFE, despite continuing to be the second largest player, lost
marginal market shares in Southern and Central markets owing to increasing penetration of
M&M and John Deere in these regions. While Escorts continues to lose market share as
has been the case the past 3-4 years owing to its shift in focus towards higher HP
segment, John Deere, has recorded a healthy increase in market share in the current fiscal
(from 5.2% in FY2014 to 5.8% in 10m FY2016), led by a robust 28% growth in export volumes.
Domestic tractor market sales continue to remain sluggish with no signs of any recovery
in the near term. After declining by 13.0% during FY2015, the domestic tractor industry
volumes continued to be under pressure, resulting in decline of 12.1% on a YOY basis in
April-February FY2016. The demand in the market continues to be marred by weak farm
sentiments, a result of stressed farm incomes on account of consecutive crop failures, a
second consecutive year of weak south-west monsoon as well as only a modest increase in
MSPs of various crops. Additionally, non-agri demand has remained weak and a slow pick up
in infrastructure and construction activities has constrained demand from haulage
purposes. Increasing exports to destinations such as Turkey and Algeria aided volume
expansion in exports besides supplies to US (by select players) till May 2015; the growth
has however moderated over the recent past. While OEMs continue to focus on growing
exports and have enhanced their distribution channels in identified geographies and
launched products tailored for specific markets, the challenges in the key markets have
constrained demand. With the contribution of exports to industry volumes (domestic +
exports) remaining low, the industry sales volumes continue to mirror the declining trend
in domestic volumes.
2. Opportunities and threats
The governments thrust on rural development, especially on irrigation programmes, and
farmer welfare, in the budget could also help improve farm sentiments. ICRA expects the
tractor domestic volumes to grow at a moderate pace with an outlook of a growth in tractor
volumes (domestic + exports) of 4- 6% in FY2017, with any major recovery in demand to
happen over the medium term. On the long term front, ICRA continues to maintain a volume
CAGR of 8-9% for the tractor industry over the next five years as long term industry
drivers remain intact. The government remains committed towards rural development and
agri-mechanization and given the current low penetration in various states, the demand
potential remains strong. This coupled with other factors such as increasing rural wages;
scarcity of farm labour as well as long term trend of improving MSPs is also likely to aid
growth in industry volumes over the long term.
The Governments efforts to increase MSPs this year has not only helped in reducing the
volatility in farm income but has encouraged them to purchase farm equipments. Tractor
industry along with others have also been benefited from the government policy allowing
free inflow of foreign technology through foreign collaborations. The establishment and
present status of tractor industry owes a great deal to the support received by the Indian
entrepreneurs from foreign collaboration during the initial phase of manufacture.
3. Segment-wise or product-wise performance
Your company is engaged in one segment only i.e manufacturing of Tractor parts. Showing
credible performance in a tough year, the company produced 13477.62 Mt. of components
during the year 2015-16, a capacity utilisation of 75 %. The company was able to achieve
turnover of Rs.8612.19 lacs for the year ended 31st March, 2016.
4. Outlook
Recovery in demand remains contingent on a healthy monsoon In FY2016, the country saw
its worst monsoon in six years, with the southwest monsoon ending with a deficiency of 14%
from the -Long Period Average (LPA) following a below average monsoon performance
(deviation of 12% from LPA) in FY2015, further weakening farm sentiments. The Second
Advance Estimates of crop production released in February 2016 indicated a decline in
output of most kharif crops; an unfavourable kharif harvest in FY2016 points to third
consecutive season witnessing below par crop production. An unusually dry winter in the
northern parts, leaving little moisture in the soil, plus a delay in harvesting of paddy
grown in preceding season, delayed sowing of rabi crops and the sowing till January 28,
2016 marked a 3% decline over the sowing levels at the same time last year. Although the
recent wet spell in early March 2016 witnessed in several parts of the country is likely
to boost the reservoir levels, its effect on the harvest of the rabi crop remains to be
seen. Also, asset quality pressures and increasing risks of delinquencies in this asset
class have resulted in financiers being circumspect in their lending. ICRA thus expects
the domestic tractor volumes to remain weak over the short term with any improvement in
demand being contingent on healthy monsoon rainfall. ICRA believes that in the backdrop of
current distressed cash flows at the farmers end, tractor sales would improve gradually in
the next fiscal if monsoons are normal during FY2017 with adequate geographic and temporal
distribution. While there have been green shoots evident in select states like Andhra
Pradesh, Tamil Nadu, Maharashtra, Bihar, Orissa, the larger markets continue to witness
double digit decline in volumes, belying any hopes of pan India recovery. Normal monsoon
during April 2016 to July, 2016 supported recovery in Tractors demand by 10%. We hope that
this increase will continue in future also.
Monsoon cheer may not be enough for tractors stocks. According to ICRA, the government
of Indias efforts towards rural development and agri-mechanisation along with other
factors like scarcity of farm labour, healthy credit availability, moderate penetration
and shortening replacement cycle continue to encourage demand for tractors.
5. Risks & Concerns
FY15-FY16 has witnessed an addition of about 123000 units of production capacity at an
aggregate investment outlay of about Rs 600-700 crore. With roughly 123,000 units of
manufacturing capacity came on-stream during FY15-16, higher manufacturing capacity
coupled with current slowdown in the tractor sales could lead to a drop in capacity
utilization levels and force OEMs to defer their investment plans over a longer horizon.
6. Internal Control Systems and their adequacy
The company has adequate internal control procedures commensurate with the size of the
company and the nature of its business with regard to the purchases of inventories, fixed
assets, and payment of expenses and for the sale of goods. The internal control systems,
comprising policies and procedures, are designed to ensure reliability of financial
reporting, timely feedback on achievement of operational and strategic goals, compliance
with policies, procedures, applicable laws and regulations, safeguarding of assets and
economical and efficient use of resources. The systems are assessed periodically. The
Company has elaborate systems for Budgetary Control and timely Management Information
System (MIS).
7. Discussions on financial performance with respect to operational performance
The. company reported Sales Volume of Rs. 8612.19 lacs with capacity utilisation of
75%. The EBITDA is Rs. 1100.35 lacs, Profit after tax is Rs. 146.44 lac and EPS is Rs.
1.22.
8. Material Developments in Human Resources /industrial Relations front, including no.
of people employed
The Company believes that its Human Resources are its biggest strength. While the
technology and product is fairly standardised in this mature industry, the superior
results achieved by the Company on various fronts, including financial, environmental and
social, are made possible by the talent, spirit, commitment and contribution of its
employees at all levels. Accordingly, the Company places people at the heart of its
business strategy. In order to ensure that young talent is adequately supported and
developed, the Company has taken several initiatives to facilitate their mentoring by
senior professionals in the organisation.
The Company believes in upgrading skill of workforce and carry on training &
seminars in many streams. The Company upholds and promotes a culture of trust and mutual
respect through all its employee-relations endeavours. The Company is continuously
building sustained communication and engagement with its workforce as it strongly believes
that the success of any organisation depends upon the engagement and motivation levels of
its employees. The emphasis is to give autonomy and an enthusing sense of empowerment to
people at different levels, and create a sense of ownership in order to unleash their
potential. The employee relations at all levels were cordial throughout the year. As on
March 31, 2016, the Companys total permanent employee strength was 223.
9. Senior Management disclosures to board their personal interest inmaterial financial
and commercial transactions
Senior Management does not have their personal interest in material financial and
commercial transactions.
+91-9892691696
