Non-Farm Income Driving Rural Demand, Says Mahindra’s Jejurikar
Robust rural demand aided Mahindra’s tractor sales.
Mahindra & Mahindra Ltd. said rural demand remains robust on the back of non-farm income and India’s largest farm equipment maker doesn’t subscribe to the talk of gloom in the hinterland.
The company sold 44,000 tractors in September, the highest ever in a month. Farmers’ income found support in allied activities, boosting rural demand, Rajesh Jejurikar, president of farm equipment sector at Mahindra & Mahindra, told BloombergQuint in an interview.
A lot of farmers now live in semi-urban areas doing non-farm jobs, which adds to their income, he said. This may be a primary “enabler for money in hands” for them.
Higher sales last month can also be partly attributed to the earlier onset of festival season in September, he said. Kharif (monsoon crop) income coupled with a 6 percent rise in minimum support price also helped, Jejurikar said.
Here are the edited excerpts of the interview.
What portion of sales would you attribute to festival shopping and how do you read the return of demand in the rural sector, if at all it is a return?
It has been a very good month for us and we sold 44,000 tractors and that is a growth of 52 percent. It has been a good performance. We have gained market share, not just in September but consistently through the first half of the year. That’s on the back of the last two years where we gained 2.7 percent market share. It’s a good industry performance and good brand performance too.
There are two parts to the drivers. One is the preponement of the festival season. So, September this year has seen Navratri and Dussehra; last year it was all in October. Certainly, that’s one of the factors that account for a high percentage growth because the base is different.
While many people talk about the gloom around everywhere in rural India, we don’t necessarily see it. Our view is many factors in rural India are positive. It’s only two to three states where there has been a rainfall deficit. Uttar Pradesh and Madhya Pradesh are the two big ones. But these are the ones where reservoir levels are good. They also have a high level of irrigation. Hence, the impact on crop and farming is not as much as people would have expected. In many places where reservoir levels have been low and irrigation has not been as good, rains have been good. So the country has nice balancing this time. Sometimes, we just read rainfall data and then interpret that to mean that there is going to be panic. One has to look at it at a more micro level and connect all the factors—which is rainfall, reservoirs and irrigation coverage. That makes us feel that the situation could be decent. The kharif crop production has been decent, minimum support prices are up 6 percent. So overall, we feel rural demand is reasonably robust and you see that in some other sectors too.
Last year October sales were 43,826 units versus 44,000 this September. Also is the 50 percent sales jump mostly due to the festival season or because of restocking after dealers pared inventory ahead of GST?
The October number for last year was our previous highest. If you compare our previous highest, that was the month in which all the festivals happened at the same time. This year, we had Navratri and Dussehra, with Dhanteras and Diwali still to come.
In that context, 44,000 in September compared to last October is a good number.
Yes, the stock buildup is happening because of GST. But that happened in August too. If you look at April to September, which evens out the buildups and corrections, the industry grew by 21-odd percent and we gained market share. If you look at six months, then that sorts out the GST down-stocking that happened in June.
To understand the state of the rural economy better - is there anything to suggest that in the landed farming community, there is less in terms of income in hand to spend on mechanisation, etc.?
Actually not, because inflation levels in rural India have dropped too. So, net money-in-hand seems to be okay. Another thing one has to consider is a lot of rural India is now moving towards non-farm income. When you look at incomes in hands of farmers, it is not just coming from agriculture but a lot of it comes from other allied activities and services.
One has to look at it holistically and we find that other revenues and income streams are increasingly going up. The one thing that we don’t look at in data is a lot of farmers or farm landowners are living in semi-urban areas and are doing jobs. It is not as discreet as one used to see in the past, where somebody is a landowner or a farmer and has no other life.
Consumers in semi-urban areas have been doing other jobs. They may be teachers working in government, and they have farmland. So, their income stream is not only farming dependent, but it’s like a hybrid model emerging.
Will the farm loan waivers announced by a few states also help in keeping rural demand buoyant? Have they contributed to the boost in sales for a company like yours?
The effect of that has not yet come in because loan waivers has been announced but it’s not executed on ground. That will happen in next few months.
The reason it becomes a factor is because finance companies/banks are recapitalized which helps them improve lending. So, that becomes the demand enabler more than some other factors like farmer income. It doesn’t affect farmer income as much as ability of banks to lend.
Two or three state elections coming up. Historically, is there evidence that it could lead to agricultural spending and therefore enhancement of tractor sales?
When there are state elections, the minimum support prices start going up. Agri-spending goes up too. So, that is an enabler to demand and money in hands of farmers. So, historically, yes; but how much of that will happen coming in this election? One can’t speculate.
Are we looking at a strong October and November for you which may or may not be the case for some other auto companies?
One has to separate out the festivals’ effect when we look at what happens in October and November. So, our sense is that we will end the year with 10-12 percent industry growth, which we’d talked about at the beginning of the year. The 52 percent growth in one month should not imply that it’s going to be the trend for the remaining months. One can read that there is robustness in rural demand. The impression that people have that the consumption level of equipment level or white goods level has disappeared, I don’t think that is true. We will still hold on to our annual industry production of 12 percent.
If you do 8 percent for the remainder of FY18, then it is still clocking above 15 percent. But you are mentioning a year-on-year number of 10-12 percent.
Because there is huge industry waiting period, especially, in tractors in the first half because of the seasonality of buying. So, June is normally a very big month and then the festival time is a very big month. The industry is on a much lower base in the balance months. One has to wait and see what happens post-October. A lot of the realizations for the Kharif crop will start coming in. That’s not yet come in because harvesting has gotten delayed by 20 odd days in October. So, that money realization can come in and then that will be the determinant of how the balance months will go. So, right now, we are not changing 10-12 percent as a forecast. Maybe after a month or two, it could be an appropriate time to revive, if at all.
Gives us more details on the products that sold well last month, market share gains, and your targets for the year end.
Our specific products have done very well both from brand Swaraj and Mahindra point of view. Under Mahindra brand, we launched Jivo in Maharashtra, Gujarat, and Karnataka. That’s the 25 HP four-wheel drive product which is horticulture specific. That’s been doing very well.
Our earlier launches, Yuvo and Novo did very well. Some specific model such as Swaraj has done very well. Many of our new products and new introductions have got a very good response in the market which is enabling our market share story. We have gained about 0.4 percent market share. This year, we are now at 43.6 percent for the first half which we believe is very strong and healthy position between two brands of Mahindra and Swaraj. Unfortunately, can’t share the target for the year. But, we do hope to keep up our market share gain momentum going.