The slowdown across India's vast hinterlands, which was largely driven by below normal monsoon rains in 2023, is still not showing any meaningful signs of revival yet.
Tractor sales, a key barometer for rural demand, declined last quarter and the de-growth is only likely to have worsened in the January-March quarter, according to Mahindra & Mahindra, the country's largest tractor maker.
The company's tractor sales in the October-December quarter declined 4.1 per cent to 1,01,000 units, on the back of lower monsoon and last year's high base. Overall, tractor industry volumes were down 4.9 per cent in the third quarter.
Mahindra gained 80 basis points market share in the tractor market and its share currently is at 41.8 per cent.
In January, Mahindra's domestic tractor sales slumped 17 per cent to 22,972 units, and over the April-January period, sales declined 3 per cent to 3,20,129 units.
"This year we expect the tractor industry to be more negative than what we had thought, based on what we have seen in the last few months. We expect the tractor industry to be around -5.0 per cent for the full year.
Quarter four will be more negative than that, we would see roughly a 10 per cent negative growth in Q4," Rajesh Jejurikar, executive director and CEO, auto and farm sector at M&M, said in an interaction with reporters.
Consumer demand in rural India has been in the slow lane for some time now, with below normal rains in many parts last year impacting kharif crop output. Reduced reservoir levels are also a worry this time around.
Fast-moving consumer goods companies had also pointed to continued sluggishness in rural demand. Hindustan Unilever, the largest fast-moving consumer goods maker in the country, for instance, had reported just 2 per cent growth in volumes in the December quarter.
Jejurikar feels a couple of things will be needed to drive rural sentiment upwards. News of good monsoon this year should lift hopes from a farmer's perspective, he said.
Recent reports have said El Nino conditions, which brought warm weather in 2023, were weakening and should lead to good rains this year. A normal monsoon year will be key to lift Kharif crop season this year.
An increase in government spending will also be key. While this time the budget was just a vote on account, the hope is that government spending will get a lift in the full budget post the general election.
"We need to see that (government spending) starting to walk because that is a key driver of rural prosperity because rural household income comes from many other sources than just farming. So, the overall prosperity in the rural household gets enhanced when there is very good level of government spending," he said.
The slower tractor sales weighed on Mahindra's third-quarter earnings. On a standalone basis, the company's net profit surged 61 per cent from a year ago to Rs 2,454 crore. Analysts had expected M&M to report a profit of Rs 2,512 crore, according to Reuters. Quarterly revenue was up 16 per cent to Rs 25,642 crore.
