Tractor demand unlikely to be impacted by interest rate hikes: Escorts CFO

The interest rate hike by RBI is unlikely to have a significant impact on tractor demand but high inflation is a concern that can affect sales, says Escorts Kubota Ltd Group CFO Bharat Madan.

With the second and third quarters of ongoing fiscal year likely to witness flattish or even decline in sales due to off-season and high base of last year, and pick-up happening again in the fourth quarter, the tractor industry is likely to clock low to mid single-digit growth.

"There is a marginal impact on demand...We don't see any significant impact on the demand side because of interest rate hikes," Madan told PTI.

He was responding to a query on how the interest rate hike by the RBI could impact tractor sales. Escorts Kubota is a farm equipment manufacturer.

The Reserve Bank of India (RBI) on Friday raised the key interest rate by 50 basis points. This was the third consecutive increase since May, effectively bringing interest rate to the pre-pandemic level.

"If you look at the industry in retail finance in tractors, the interest rate charges as it is are very high. Those rates do not move with the happenings in the RBI side. They're not really floating rate," he explained.

At present, interest rates on tractor loans could range from 9 per cent to over 20 per cent per annum, depending on tenure and banks.

On what could impact tractor demand, he said,"I think it'll be more because of the inflation where the impact is coming, but the RBI increasing interest rates has a marginal impact only."

There have been some pressures on the rubber side and tyre prices are moving up, he said, adding, however prices of other commodities like steel have gone down.

As for the outlook of the industry, Madan said,"We are still expecting low to mid single-digit growth for the industry this year. We have seen that in the first quarter, the industry has grown 16 per cent because of the low base effect of COVID. Last year was the second wave of COVID and the industry got impacted."

The next two to three months will not be really good, he added.

"Normally, monsoon is not a season month for the industry but from September onward, we see the pick-up should happen. If the monsoon distribution is really good we should see some positives coming in the second half of this year," Madan said.

The expectation is that the industry will do well in the last quarter, he said adding,"Q2 and Q3 may see flattish growth or marginal degrowth. In Q3 the base (of last year) is high but in Q4 we can see a good growth number coming in".

Madan said Q2 is normally a softer quarter due to the off-season, while in Q3 normally the peak season comes up.

However, he said,"This time, festive season is starting early. So the stocking will start happening from September onwards and October, they're all expecting to be the big month. The three months really play between two quarters and that's why overall for the six-month period, you may not see a major impact coming in."

The Q4, which is a standalone quarter, normally sees a good growth, especially in the northern pockets if the rainfall is good, Madan said.

As per industry estimates, domestic tractor sales grew 13 per cent at over 9 lakh units in 2021 compared to more than 8 lakh units in 2020.