Demand for tractors unlikely to be affected by interest rate hikes: Escorts CFO

Raising interest rates by RBI is unlikely to have a significant impact on demand for tractors, but high inflation is a concern that may affect sales, says Bharat Madan, Group Chief Financial Officer of Escorts Kubota Ltd.

With the second and third quarters of the current fiscal year likely to witness flat or even declining sales due to last year’s low season and high base, and recovery occurring again in the fourth quarter, the tractor industry is expected to bottom. mid-single-digit growth.

“There is a marginal impact on demand… We don’t see any significant impact on the demand side due to interest rate hikes,” Madan told PTI.

He was responding to a question about the impact of the RBI raising interest rates on tractor sales. Escorts Kubota is a manufacturer of agricultural equipment.

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

“If you look at the retail financing industry in tractors, the interest rates as they are are very high. Those rates don’t move with events on the RBI side. They’re not really floating rate.” , he explained.

Currently, interest rates on tractor loans can range from 9% to over 20% per annum, depending on tenure and banks.

On what could impact demand for tractors, he said: ‘I think it will be more because of inflation where the impact will be but the rise in RBI interest rates n only has a marginal impact.

There has been pressure from the rubber side and tire prices are rising, he said, adding that the prices of other raw materials such as steel, however, have fallen.

Regarding the outlook for the industry, Madan said, “We still expect low to mid-single digit growth for the industry this year. We saw that in the first quarter, the industry grew by 16% due to the weak base. effect of COVID. Last year was the second wave of COVID and the industry was hit. »

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

“Normally monsoon is not a seasonal month for the industry, but from September we see that the recovery 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 industry is expected to do well in the final quarter, he said, adding, “The second and third quarters could see flat growth or marginal decline. In the third quarter, the base (from last year) is high, but in the fourth quarter, we can see good growth. incoming number”.

Madan said the second quarter is normally a milder quarter due to the off season, while in the third quarter the high season normally comes.

However, he said: “This time the festive season starts early. So the stockpiling will start from September and October, they all expect to be the big month. The three months are really playing out between two quarters and that’s why overall for the six-month period, you might not see a major impact.”

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

According to industry estimates, national tractor sales increased by 13% to over 9 lakh units in 2021, from over 8 lakh units in 2020.

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Stephen V. Lee