Chennai, Mar 21 (IANS): The growth rate in tractor sales is to halve in FY24, while the operating margins are set to improve owing to lower input costs, said credit rating agency CRISIL Ratings.

"Domestic tractor sales volume growth is seen halving to 4-6 per cent in fiscal 2024 from a high base created by a compound average growth rate of 10 per cent since fiscal 2020 on the back of successive normal monsoons," CRISIL said in a statement.

However, softening prices of inputs such as steel and pig iron will provide a 100-200 basis points (bps) respite to the operating margin of tractor makers.

Further, net cash-positive balance sheets will continue to support strong credit profiles.

In fiscal 2023, tractor sales volume will hit a record as farm sentiment remains healthy after another good monsoon -- the key driver of farm incomes -- and increase in Minimum Support Price (MSP) for the 2022-23 market season.

"Riding on a high base, tractor volume growth next fiscal will be driven by both, the farm and commercial segments. The 5 per cent increase in MSP for wheat for the ongoing rabi crop -- the highest in the last four fiscals -- will improve farm incomes, while the government's infrastructure push and higher construction activity will drive commercial demand," said Naveen Vaidyanathan, Director.

According to Nitin Bansal, Associate Director, high input prices had led to operating margin falling for the last two fiscals from a decadal high of about 22 per cent in fiscal 2021 to about 15 per cent in fiscal 2023, despite successive price hikes.

However, prices of steel and pig iron, which together account for about 90 per cent of the total raw material cost of tractors, have eased in the past few months and may decline by 6-12 per cent next fiscal, driven by softer coal prices.

This should help improve operating margin to 16-17 per cent, Bansal said.