INDUSTRY PROFILE

Indian Tractor Industry-An Overview:

Current capacity of the Indian tractor industry is 400,000 units while the sales stands at

310,000 units per year. Major players include M&M Ltd, Tractor and Farm Equipment Ltd,

International Tractors Ltd, Punjab Tractors Ltd and John Deere. 93% of the demand comes

from 12 major states, of which UP is the largest market. While agricultural growth is the

primary demand driver, in recent years, allied usages of tractors and application for haulage

have also been driving demand.

Salient features of the Indian tractor industry today are as follows:

The Major export markets for Indian tractor industry are USA and China (80% - USA).

Adequately penetrated in volume terms but under penetrated in Horse Power (HP) terms.

CAGR in volumes @ 10 % over past four decades with seasonal variations.

Expectation by 2010: Domestic sales - 350,000 unit’s p.a. and Exports - 60,000 unit’s p.a.

Long run expected CAGR - 5-7%.

Credit availability, fuel costs and monsoons are the largest purchasing influencers.

The tractor markets of Karnataka, Maharashtra, Tamil Nadu, and Gujarat are growing

50%.

The share of high HP segment (>40 HP) tractors in the total sales (including exports) has

been rising and this trend is expected to continue.

HISTORY OF TRACTORS INDUSTRY:

As commercialization of agriculture grew in intensity in the mid to late 1800s the British

Raj and the local legislatures and provinces began investing in agricultural development

through support and establishment agricultural research farms and colleges and large scale

irrigation schemes yet the level of mechanization was low at the time of independence in 1947.

The socialist oriented five year plans of the 1950s and 60s aggressively promoted rural

mechanization via joint ventures and tie-ups between local industrialists and international

tractor manufacturers. Despite this aggressiveness the first three decades after independence

local production of 4-wheel tractors grew slowly. Yet, by the late 1980s tractor production was

nearly 140,000 units per year and by the late 1990s with production approaching 270,000 per

year, India over-took the United States as the world's largest producer of four-wheel tractors

with over 16 national and 4 multi-national corporations producing tractors today. Despite these

impressive numbers FAO statistics estimate that of total agricultural area in India, less than

50% is under mechanized land preparation, indicating large opportunities still exist for

agricultural mechanization

1945 to 1960

War surplus tractors and bulldozers were imported for land reclamation and cultivation in

mid 1940's. In 1947 central and state tractor organizations were set up to develop and promote

the supply and use of tractors in agriculture and up to 1960, the demand was met entirely

through imports. There were 8,500 tractors in use in 1951, 20,000 in 1955 and 37,000 by 1960.

1961 to 1970

Local production began in 1961 with five manufacturers producing a total of 880 units per

year. By 1965 this had increased to over 5000 units per year and the total in use had risen to

over 52,000. By 1970 annual production had exceeded 20,000 units with over 146,000 units

working in the country.

1971 to 1980

Six new manufacturers were established during this period although three companies

(Kirloskar Tractors, Harsha Tractors and Pittie Tractors) did not survive. Escorts Ltd. began

local manufacture of Ford tractors in 1971 in collaboration with Ford, UK and total production

climbed steadily to 33,000 in 1975 reaching 71,000 by 1980. Credit facilities for farmers

continued to improve and the tractor market expanded rapidly with the total in use passing the

half million mark by 1980.

1981 to 1990

A further five manufacturers began production during this period but only one of these

survived in the increasingly competitive market place. Annual production exceeded 75,000

units by 1985 and reached 140,000 in 1990 when the total in use was about 1.2 million. Then

India - a net importer up to the mid-seventies - became an exporter in the 1980s mainly to

countries in Africa.

1991 to 1997

Since 1992, it has not been necessary to obtain an industrial license for tractor

manufacture in India. By 1997 annual production exceeded 255,000 units and the national

tractor population had passed the two million mark. India now emerged as one of the world

leaders in wheeled tractor production.

1999 to Present

Facing market saturation in the traditional markets of the North West (Punjab, Haryana,

and eastern Uttar Pradesh) tractors sales began a slow and slight decline. By 2002 sales went

below 200,000. Manufacturers scrambled to push into eastern and southern India markets in an

attempt to reverse the decline, and began exploring the potential for overseas markets. Sales

remained in a slump, and added to the market saturation problems also came increased

problems of "prestige" loan defaults, where farmers who were not financially able took tractors

in moves to increase their families’ prestige. There is also reported increased misuse of these

loans for buying either lifestyle goods, or for social functions. Government and private banks

have both tightened their lending for this sector adding to the industry and farmers woes. By

2004 a slight uptick in sales once again due to stronger and national and to some extent

international markets. But by 2006 sales once again were down to 216,000 and now in 2007-08

have slid further to just over 200,000.

Tractor Manufacturers Association:

The Tractor Manufacturers' Association of India (TMA) is housed under The

Confederation of Indian Industry (CII), New Delhi. Though not all manufacturers are members

TMA is recognized as the main trade group representing the agricultural tractor industry in

India. Mallika Srinivasan, Economic Times Businesswoman of the year 2006, and CEO of

TAFE Limited, is currently serving as president.

CURRENT MANUFACTURERS OF TRACTORS IN INDIA

Balwan Tractors, Force Motors Ltd

Formerly known as Bajaj Tempo Ltd. until 2005, Force Motors Ltd., makers of India's

ubiquitous 3-wheeler Tempos since 1957 in a collaboration with Vidal & Sohn Tempo Werke,

Germany. In 1999 began production of Ox and Ox 45 Brand Tractors both which incorporated

transmission technology from the German manufacturer ZF. Additional line Balwan was

introduced in 2004 and between the lines Force Motors offers a line of two-wheel and four-

wheel tractors in a horsepower range from 10 - 50 HP.

Eicher

In 1949, Eicher Good Earth was set up in India with technical collaboration with Gebr.

Eicher of Germany imported and sold about 1500 tractors in India. In April 24, 1959 Eicher

came out with the first locally assembled tractor from its Faridabad factory and in a period

from 1965-1974 became the first fully manufactured (100% indigenization) tractor in India. In

December, 1987 Eicher Tractors went public and in June, 2005 Eicher Motors Limited sold

Eicher Tractors & Engines to a subsidiary of TAFE called TAFE Motors and Tractors Limited.

Eicher also produced tractors under the Euro Power and Eicher Valtra brands under

license from Valtra, an AGCO brand.

Escorts (Escort, Powertrac and Farmtrac)

Escorts Ltd began local manufacture of Ford tractors in 1971 in collaboration with Ford,

UK and total production climbed steadily to 33,000 in 1975 reaching 71,000 by 1980. Ford

(Ford - New Holland) was sold in 1992. Ford Motor Company proper quit the tractors

business, but the name was allowed to continue as per agreement until 2000, when Escorts

relabeled its Ford models under the Escort brand. Escort manufactures produces tractors in the

27-75 HP range and has already sold over 6 lack tractors. Its tractors are marketed under three

brand names, Escort, Powertrac and Farmtrac.

HMT Tractors

HMT is a large public sector unit and began manufacturing Agricultural Tractors in 1972

under the HMT brand name with technology acquired from Zetor of the Czech Republic. It

manufactures its tractors in Pinjore, Mohali in a large factory that also manufactures machine-

tools, and Hyderabad It has a capacity of 20,000 tractors per annum. In the Machine-tool

company is a large foundry. It produces tractors in a range from 25 HP to 75 HP. For a short

time, HMT exported tractors to the USA under the Zebra brand, which were marketed by Zetor

distributors and dealers there. The company is controlled by the Ministry of Heavy industry

that provides, on a monthly basis to the public its financial performance.

John Deere

In 2000, John Deere set up production in a joint venture with Larsen and Toubro Ltd in

Sanaswadi, in a rural area near Pune, Maharashtra. It was known as L&T John Deere Private

Ltd, and manufactured tractors under the L&T - John Deere name for sale in India, and under

the John Deere name for worldwide sales.

In 2005, Deere & Company acquired nearly all the remaining shares in this joint venture.

The new enterprise is known as John Deere Equipment Private Limited. The factory currently

produces tractors in of 35, 40, 42, 47, 50, 55 and 70 HP capacities for domestic markets and for

export to the USA, Mexico, Turkey, North and South Africa, and South East Asia. Pune

factory started to produce new 55 to 75 Hp 5003 series tractors for European market in 2008.

Mahindra Gujarat Tractor Limited

The company was originally incorporated in the state of Gujarat in 1963 with technical

collaboration with Motokov-Praha of Czechoslovakia as Gujarat Tractor Corporate Ltd. It was

taken over by Mahindra & Mahindra Limited in 1978 (holds 60% equity) and re-christened

Mahindra Gujarat Tractor Ltd as part of Mahindra Tractors. The company is engaged in

manufacturing of tractors in a range of 30-45hp which are marketed under Shaktimaan brand.

They were previously marketed under the Mahindra Gujarat name, and before that the

Hindustan name.

Mahindra and Mahindra

M and M's Farm Equipment Sector origins lie in a joint venture in 1963 between the

Company, International Harvester Inc., and Voltas Limited, and was named International

Tractor Company of India (ITCI). In 1977, ITCI merged with M&M and became its Tractor

Division. After M and M's organizational restructuring in 1994, this division was called the

Farm Equipment Sector. The Farm Equipment Sector has also ventured into manufacturing of

Industrial Engines. M and M Industrial engines are used for various applications like generator

sets, industrial, construction, marine, compressors, etc.

These engines are manufactured at the Company's engine assembly plants at Kandivli and

Nagpur. M and M has two main tractor manufacturing plants located at Mumbai and Nagpur in

Maharashtra. Apart from these two main manufacturing units, the Farm Equipment Sector has

satellite plants located at Rudrapur in Uttarachal and Jaipur in Rajasthan. The Farm Equipment

Sector as reported by the Company has a dealer network of over 450 dealers. In March 2007,

M&M bought a controlling 43% stake in the Mohali-based tractor firm Punjab Tractors

(Swaraj) that will reportedly increase M&M's share in the domestic farm equipment market

from just over 30% to 40%. The 43% stake includes 29% owned by private equity firm Actis

Capital and 14.2% by the Delhi-based Burman family. In July 2007, Mahindra upped its stake

to 64.6%.

New Holland

New Holland Ag's entry into India was facilitated by FIAT's acquisition of Ford-New

Holland in 1991. By 1998 New Holland Ag. (India) completed the construction of a new plant

in Noida, near New Delhi, with a capacity of 5000 tractors in the 35 - 75 hp range. In 1999,

New Holland Ag.'s parent company FIAT bought 70% of holdings of Case Corporation

and created Case New Holland Global (CNH one of the top three

tractor/agricultural/construction machinery manufacturers in the world), the new holding

company New Holland Ag. (India). In 2000, the capacity of the Noida plant rose to 12,000

tractors per year and in 2007 the company manufactured 24,000 tractors for the domestic and

export markets. New Holland India exports fully-built tractors to 51 countries in Africa,

Australia, South-East Asia, West Asia, North America and Latin America.

The India plant of New Holland was originally built in 1998 to cater only to India

domestic market. However due to slow down of economy by year 2001-2002 and slump in

domestic demand, it became a challenge to utilize the installed capacity of the factory. Hence

the company started looking its market beyond India borders. Its then CEO Mario Gasparri

guided the vision and handed over the task of overseas business to its dynamic manager Bhanu

Sharma. The efforts paid off well. Bhanu Sharma in capacity of Head-International Business

Operations took up the export volumes from the level of almost nil in 2003 to 8000 units in

year 2007. The export business last year in 2007 contributed over 50% of the company

business of total USD 250 millions. This also made New Holland the second largest tractor

exporter from India after John Deer. In year 2007, India exported around 32,000 tractors of

which 25% share was of New Holland.

Attractiveness of Indian Tractor Industry:

The Indian tractor industry is analyzed using Porter’s five forces framework, where the

five forces are rivalry, buyer power, supplier power, barriers to entry and the threat of

substitutes. Bargaining power of both buyers and suppliers is found to be low, as they are

fragmented. Rivalry among existing firms is also only moderate as the key is the distribution

network and the major companies have carved out different segments and geographies to

operate in. With the opening up of the Indian market and the removal of restrictions on imports

coupled with stagnating mature markets, the threat of new entrants, though moderate, is more

than it was in the past.

The industry is reasonably attractive with low buyer and supplier power, low threat of

substitutes and only moderate threat of entry and substitutes. Going forward, it can be safely

assumed that industry has entered into a mature phase which will result in a slowdown in the

demand from 20% CAGR (2002-06) to 5-7% over the next five years. Sales will be

characterized by a greater number of repeat customers and high replacement sales.

A low capacity utilization of 60-70%, limited new product introductions, technological

breakthroughs, and stiff competition from international players will result in greater

consolidation.

A spurt in the demand for LP tractors by golf courses, hotel & airlines industry may force

companies to concentrate on aesthetics, noise reduction, and comfort aspects. Increasing

prosperity in the rural areas leading to more haulage needs and large scale bio-mass cultivation

can propel firms to design a multipurpose vehicle to take care of farming, transportation, and

alternate power source needs.

Another observation is that high capacity utilization leads to better operating margins in

this industry and companies like International Tractor Limited have proved this.

The product offerings by the major players are largely homogenous. This means that

differentiation is possible only through a diversified portfolio or provision of better services

like wider distribution network and financial tie ups with banks.

COMPANY PROFILE

Mahindra Gujarat Tractor Limited (MGTL) is a subsidiary of Mahindra and Mahindra (M

and M).The Company was earlier operating as Gujarat Tractor Corporation Limited, promoted

by the Govt of Gujarat (GoG) in 1978. Mahindra and Mahindra acquired a majority stake

(60%) in Gujarat Tractor Corporation Limited when it was privatized in end 1999. Since then

the Company is managed by M and M though the GoG still retains 40% equity in the

Company.

The Company manufactures powerful fuel efficient tractors in a range from 30HP to 60HP

marketed under the "Shaktimaan" brand. MGTL is an ISO 9001:2000 company.

Mahindra Gujarat Tractor, acquired by Mahindra & Mahindra from the Government of

Gujarat in 1999, is the oldest running tractor unit in India. The Mahindra Group has a 60%

stake and the balance (40%) is with the state Government of Gujarat. Originally founded in as

Gujarat Tractors Ltd, in the India state of Gujarat in 1963 in cooperation with Motokov-Praha

(Zetor) of Czechoslovakia, , the tractors were based on the Zetor tractor design. Today, the

tractors are sold under the Shaktimaan brand in the 30-60 hp range.

MAHINDRA GROUP

The US $6 billion Mahindra Group is among the top 10 industrial houses in India.

Mahindra & Mahindra is the only Indian company among the top three tractor manufacturers

in the world. Mahindra’s Farm Equipment Sector has recently won the Japan Quality Medal,

the only tractor company worldwide to be bestowed this honour. It also holds the distinction of

being the only tractor company worldwide to win the Deming Prize. Mahindra is the market

leader in multi-utility vehicles in India. It made a milestone entry into the passenger car

segment with Logan

The Group has a leading presence in key sectors of the Indian economy, including the

financial services, trade and logistics, automotive components, information technology, and

infrastructure development. With over 62 years of manufacturing experience, the Mahindra

Group has built a strong base in technology, engineering, marketing and distribution which are

key to its evolution as a customer-centric organization. The Group employs over 50,000 people

and has several state-of-the-art facilities in India and overseas.

The Mahindra Group has ambitious global aspirations and has a presence on five

continents. Mahindra products are today available on every continent except Antarctica. M&M

has one tractor manufacturing plant in China, three assembly plants in the United States and

one at Brisbane, Australia. It has made strategic acquisitions across the globe including Stokes

Forgings (UK), Jeco Holding AG (Germany) and Schoneweiss & Co GmbH (Germany). Its

global subsidiaries include Mahindra Europe Srl. based in Italy, Mahindra USA Inc. and

Mahindra South Africa.

M&M has entered into partnerships with international companies like Renault SA, France,

and International Truck and Engine Corporation, USA. Forbes has ranked the Mahindra Group

in its Top 200 list of the World’s Most Reputable Companies and in the Top 10 list of Most

Reputable Indian companies. Mahindra has recently been honoured with the Bombay Chamber

Good Corporate Citizen Award for 2006-07.

OVER VIEW

Mahindra embarked on its journey in 1945 by assembling the Willys Jeep in India and is

now a US $7.1 billion Indian multinational. It employs over 1,00,000 people across the globe

and enjoys a leadership position in utility vehicles, tractors and information technology, with a

significant and growing presence in financial services, tourism, infrastructure development,

trade and logistics. The Mahindra Group today is an embodiment of global excellence and

enjoys a strong corporate brand image.

Mahindra is the only Indian company among the top tractor brands in the world. It is today

a full-range player with a presence in almost every segment of the automobile industry, from

two-wheelers to CVs, UVs, SUVs and sedan. Mahindra recently acquired a majority stake in

REVA Electric Car Co Ltd. (now called Mahindra REVA), strengthening its position in the

Electric Vehicles domain.

The Mahindra Group expanded its IT portfolio when Tech Mahindra acquired the leading

global business and information technology services company, Satyam Computer Services.

The company is now known as Mahindra Satyam.Mahindra is also one of the few Indian

companies to receive an A+ GRI checked rating for its first Sustainability Report for the year

2007-08 and has also received the A+ GRI rating for the year 2008- 09.

The Company's current Board of Directors is as follows:

 

NAME DESIGNATION

     

1. Mr. Keshub Mahindra   Chairman

     

2. Mr. Anand G. Mahindra Vice Chairman and Managing Director

     

3. Deepak Shantilal Parekh Director

     

4. Nadir Burjorji Godrej Director

     

5. M. M. Murugappan Director

     

6. Bharat Narotam Doshi Executive Director & Group Chief Financial

Officer (Group CFO) 

     

7. Arun Kumar Nanda Executive Director

     

8. Narayanan Vaghul Director

     

9. Dr. Ashok Sekhar Ganguly Director

     

10. R. K. Kulkarni Director

     

11. Anupam Pradip Puri Director

     

12. Arun Kanti Dasgupta Nominee of LIC

MAHINDRA AGRIFIRM

The Mahindra Group established Mahindra Agribusiness in 2000, with an equity stake

from International Finance Corporation (IFC, Washington). Mahindra Shubhlabh integrates the

agriculture and food chain from agri inputs right through to modern retail outlets. In 2008,

Mahindra Shubhlabh was India’s leading exporter of fresh grapes to the European Union.

The company's business is to establish fresh produce supply chains and directly engage in

the production & marketing of seed and seed potato. In addition, Mahindra Shubhlabh also

markets Crop Care products. Mahindra Shubhlabh engages with farmers in the production of

export quality grapes, pomegranates and apples aimed at delivery to domestic and overseas

markets including those in Europe, West and South Asia.

Within the Crop Care and Seeds area, Mahindra Shubhlabh has taken a direct initiative in

launching its brand of wheat, maize, sunflower and a range of vegetable seeds and agro

chemicals. In addition, the company has acquired land in Pune to set up a Research &

Development facility for seeds and saplings. Mahindra Shubhlabh is the first Indian corporate

to be awarded a EUREPGAP certificate as 'Primary Marketing Organization' for grapes. The

company is also GLOBALGAP & TNC Certified.

The company is working on a contract-farming model with farmers in Nashik and Sangli

in Maharashtra on table grapes (seedless Thomson variety for export) where it is intensively

involved with the growers, providing them with high quality agri inputs and expertise in

cultivation. Its core competency is pre and post harvest management and supply chain

solutions which ensure that the grapes are transported across continents in a controlled climate,

so that their garden freshness is retained till they hit mall shelves across Europe. The company

is also the only one in this business to map processes to ensure excellence in quality. Also,

Mahindra Agribusiness uses environmentally friendly pesticides approved by the World Health

Organisation during the course of cultivation.

Year 2005 was the first export season wherein Mahindra Agribusiness exported six

containers to Europe. In Year 2006, during the period from February to April, thirty containers

were exported - a five fold increase. The grapes fetched a premium of 10-15% due to their

superior quality on arrival.

The company has entered into an exclusive supply agreement with a prominent European

importer through which it supplies to huge retail chains in Europe. Besides grapes the company

is exploring exports of 15-16 containers of pomegranates to Europe in the current year.

Operations

During the year under review, your Company sold 2159 Tractors as compared to 2156

Tractors sold in the previous year.Further,during the year, your Company exported 384 tractors

as compared to 229 tractors in the previous year registering a significant growth of 67 % over

last year.

Even as the total volume virtually remained same, your Company achieved significant

improvement in its financial performance. The Profit before interest and tax for the year was

Rs. 4.53 Crores as compared to Rs 0.37 Crores in the previous year. The Profit

after tax for the year was Rs. 3.02 Crores as against loss after tax of Rs. 1.39 Crores in the

previous year. This was achieved by continuous focus on cost reduction across the organization

resulting in improved margins at operating level as well as Profit after tax level. In the course

of the year, your Company achieved a remarkable improvement in the product quality,

productivity and also implemented various low cost initiatives in all areas including

that of product awareness and branding.

In the current year, your Company plans to continue its focus on greater cost effectiveness

as well as enhancing volumes by further improving dealer network and also by focusing on

major

states in the domestic market. Similarly your Company plans to strengthen its presence in the

overseas market by offering value for money products.