“We are actively looking at an additional factory and for this we may need a land parcel of about 50 acres,” Hemant Sikka, president of farm equipment division at M&M, told ET.
He said the maker of Swaraj brand of tractors is fully maxed out on capacity. The debottlenecking measures the company has taken across its manufacturing units will improve its output incrementally and help meet the demand this fiscal year. “But beyond that, we need to add a new plant,” Sikka said.
“We are already in touch with several state governments and the decision is likely to be taken shortly.”
According to people in the know, the new tractor plant is expected to have a minimum capacity of 50,000 units a year.
The exact quantum of investment is yet to be defined as the company is deliberating over what operations to outsource or manage internally.
Expert estimated that setting up a greenfield plant that can build 50,000 tractors a year would cost Rs 250-300 crore.
M&M said Punjab is its preferred location for a new tractor plant. However, it said it’s in talks with a few others as well without naming any state.
Indian tractor market grew 26% year on year to about 899,000 units during 2020-21 in spite of the Covid-19 pandemic and resultant lockdowns, helped by above-normal monsoon rains and the fact that rural areas were largely unaffected by the pandemic.
“An above normal monsoon is positive for growth of the agri sector and augurs well for the tractor industry,” Sikka said. “Further data on quantum and spatial distribution of rainfall will help strengthen this outlook.”
The company’s volume growth trailed the overall industry by 9 percentage points last fiscal and as a result, its market share dropped by 3 percentage points to 38% in FY21 from 41% in the previous year, mainly due to supply constraints.
M&M suffered higher production and supply disruptions than most its peers because of its wide production base in Maharashtra, the worst pandemic-affected state in the country.
The company currently has three tractor plants across Mumbai, Zaheerabad, and Nagpur with a combined capacity of 3.6 lakh units a year, according to analyst’s estimate.
“In spite of working at our highest ever capacity levels, we are not able to grow at the market rate,” Sikka said. “A lot of it was because of supply chain constraints.”
Poor availability of components for advanced four wheel-drive and power-steering tractors also impacted the company’s market share, particularly in the southern market.
Despite a loss of market share, M&M is likely to post its highest yet profit margins for FY21. “The company even had a negative working capital cycle, which was for the first time ever in our history,” Sikka said.
And the company is now keen to seize back its lost market share. “We are trying to claw back the market share this year,” Sikka said.