Millennium Post


The size of the Indian economy was Rs 125.4 trillion in 2014-2015, of which the services sector contributed around 52.5 per cent, industry around 31.3 per cent and remaining 16 per cent was agriculture. During the last 10 years, the GDP has grown at a CAGR of 7.9 per cent with services leading the growth at an average nine per cent, followed by industrial growth at eight per cent, while agriculture has only grown at 3.6 per cent CAGR in the same period.

The largest manufacturing industries in North America by revenue include petroleum, steel, automobiles, aerospace, telecommunications, chemicals, electronics etc. Agricultural output has grown at 1.2 per cent between 2003 and 2013 with majority of growth coming from increase in productivity (measured by cereal yields) through development of new technology.

The European debt crisis erupted in the wake of the great recession around late 2009, and was characterised by high government structural deficits and accelerating debt levels of several Eurozone member states (Greece, Portugal, Ireland and Spain). Meanwhile, increased bailouts of the International Monetary Fund and European Central bank alleviated the situation in the debt-stricken nations of Central and East Europe led by Germany.

By the second half of 2013, the Eurozone as a whole had become more stable, though problems in Greece and slow recovery in Italy and France continued in keeping growth in the Euro area to a minimum. Germany continues to lead Europe in stability and growth, while both UK and Ireland are witnessing strong growth of three-four per cent. The EU’s average annual growth rate has been 0.95 per cent over the past five years, with a few nations in the region reeling under recessionary conditions.

Looking ahead, the prospects for the Eurozone economy are mixed. The slowdown in China will tend to hold Germany back since its exports of investment goods and luxury cars to that country will be hit. On the other hand, the decision to rescue Greece in its third bailout in five years removes uncertainty about a possible disruptive exit from the monetary union, atleast for the time being.

In India, faster implementation of infrastructure projects is expected to support commercial vehicles growth and key freight generating industries are expected to see improved demand. Freight traffic is generally measured in terms of billion ton kms (BTKM) which is a product of metric tonnes and kilometers. Overall freight demand has been growing at 6.5 per cent CAGR between fiscal 2009 and 2015. However, non-bulk traffic, which is mostly transported by road, is expected to grow by 7.9 per cent CAGR during fiscal 2015 to fiscal 2019, following expected improvement in consumption demand, especially consumer durables, pharmaceuticals and automobiles. Share of road traffic will continue to lead because of capacity constraints faced by railways. An increase in agricultural output will translate into an increased demand for commercial vehicles for the transportation of agricultural commodities.

The tractor is a multi-utility vehicle used to pull a variety of farm implements for ploughing, planting, cultivating, fertilising and harvesting crops. While a majority of tractors find usage on farms, they are also used at construction sites and ay airports to transport material and goods. Poor monsoon in most parts of India impacted farm income. In fiscal 2014, tractor sales rose strongly by 17.9 per cent year-on-year with healthy demand across regions. Conducive southwest monsoon, strong growth in kharif output, healthy rabi sowing and sustained increased in MSPs resulted in robust tractor sales growth. In fiscal 2015, tractor sales were again impacted due to deficient rainfall.

A farmer will prefer to invest in costlier assets such as tractors, when he is assured of receiving essentials for farming such as water supply or good monsoon. Irrigation intensity is expected to improve further over the medium term with investments worth Rs 5,043 billion (at current prices) having been proposed for the 12th Plan period towards it, thus supporting tractor sales.

In India, around 75 per cent of tractors purchased are on credit and hence its availability becomes a key demand driver for the industry. Therefore any major changes in financing norms directly impact the demand for tractors. Agricultural credit usage in farm mechanisation has been growing steadily over the years, thus enhancing the farmers’ ability to buy tractors.

Medium and large tractors are preferred for the cultivation of cash crops such as sugarcane and cotton, where the agricultural activity required for cultivating these is high, and the timeliness of operations is significant. Extensive cultivation of cash crops has yielded higher incomes for farmers and boosted tractor demand. Similarly, in the case of intensive farming and multiple cropping, land bed preparations, harvesting and transportation need to be done quickly. Hence high-power tractors are preferred.

The current penetration of tractors is estimated to be just over one hp per tractor. Tractors are fast replacing bullock carts and labour as it is more cost-effective to rent a tractor or own a low hp tractor. Moreover, tractors earn rental income and enable the farmer to increase cropping intensity. In developed countries, the penetration of tractors is estimated to be in the range of three to four hp per hectare, which enables much superior crop yields relative to India. Hence, the opportunity in this space is substantial, given the relatively low mechanisatio0n levels in India.

Tractor demand is expected to increase by eight-nine per cent CAGR from  fiscal 2015 to 2020 against an estimated 16 per cent CAGR seen from fiscal 2009 to 2014 supported by the following reasons: Increase in farm profitability due to; healthy growth in MSP, albeit at lower pace that in the period between fiscal 2008 and 2013 when MSPs were growing at double digit rates; growth in crop yields due to increase in irrigation intensity leading to increase in crop output; migration of labour to urban areas and rural entrepreneurship leading to farm shortage; increased focus of the Government on agriculture through agricultural credit; increase in rural development; increased availability of finance. North America is one of the largest agricultural equipment markets in value terms and is generally considered to be a mature market. Tractors there are a mix of higher and lower hp catregories, mainly dominated by two-wheel drive tractors. 

In 2014, half of the tractors sold there were below 40 hp, with tractors above 100 hp contributing 18 per cent of the sales. The outlook for economic growth in the EU has brightened and, among major EU countries, Spain, Germany, France, Italy, Poland are expected to do well in the near future. Commercial vehicle production in Europe is expected to post around 5 per cent CAGR between CY 2015 and CY 2020.

In CY 2014, global auto parts production reached about $1.4 trillion with Asia Pacific having the largest share with 55.5 per cent, followed by North America (24 per cent) and Europe (14 per cent). The auto component production in North America is around $335 billion in size, whereas that in Europe is around $193 billion. In both of these markets, 70-75 per cent of production is for OEMs

Global production is expected to increase at CAGR of 6.5 per cent between CY 2014 and 2020. Major growth will come from emerging market economies where production of auto components is going to increase. Further, with increased competition, new opportunities will open up for export-oriented low-cost countries such as India, Mexico, China, Brazil and South Korea.

In fiscal 2015, auto components consumption in India accounted for Rs 2,572 billion, with OEMs accounted for nearly two-thirds of total auto component consumption. Among OEMs, cars and utility vehicle manufacturers remain the largest consumers.

“Despite a dull economy abroad, large inquiries in exports and futures have prompted us to go in for this IPO as our exports are growing and two-third of our turnover comes from tractors with Rs 140 crores investment set for CAPEX,” said Ranbir Singh, President and CEO of Jalandhar-based GNA Axles Limited which launched on September 14, 2016 its IPO of 61 lakh equity shares priced at Rs 205 and Rs 207 each. 

“With a third generation rising from using hammer and tools in making two hand-forged components daily since 1946, the present is witnessing use of machines from Italy, Germany, Japan and Taiwan to produce components for export to the US, Europe and Japan with sales and exports rising to 54 per cent (FY16) from 35 per cent (FY12), besides $316 in spindle exports to Europe and 8.93 lakh tractor units to be assembled by 2020”, he added.

A rear axle shaft is a component of the rear axle housing on the rear-wheel drive vehicle, and this axle shaft provides the power to the tyres to drive the vehicle. In any commercial vehicle, there are two rear axle shafts and spindles except in tandem drive vehicles, where requirement of rear axle shaft and spindles is more than two. Some rear axle shaft and spindles are also used in construction equipments and SUVs. 

The current market size for rear drive axle shaft used in commercial vehicle and tractor produced in India is around Rs 5.2 billion. In fiscal 2012, the axle shaft market was at peak because of greater number of CV production and then onwards it declined due to weak economic activity. The tractor contributes the highest in terms of volume among the four segments. The current market size for spindles used in commercial vehicles produced in India is around Rs 1.7 billion. In fiscal 2012, the spindle market performed well because of higher CV production, but its market was subdued in fiscal 2014-15 because of low CV production due to tepid demand and higher financing cost.


Over the past decade, India has emerged as the auto component hub for automakers across the globe, given its relatively-lower manufacturing cost. Superior product quality and a shift to high-tech products have helped Indian component makers compete better with other lower-cost destinations and thus boost exports. In the auto component industry, cost optimization is the most critical factor and low cost countries focus on lowering manufacturing as well as supply chain costs while maintaining quality
India’s credibility has also driven global automakers to increasingly source components from here. A recovery in North America and Europe – tow primary markets with over 50 per cent share – has also driven Indian auto component exports. India has become a global hub for compact cars launched by global players like Ford, Volkswagen, Renault and Nissan and export of related components. Even as the above trends are encouraging, India still constitutes only 1 per cent of global auto component exports. This may change in the coming years as more global automakers set up shop in India and its automobile exports increase rapidly

Though NAFTA and EU continue to remain as key markets, Indian exporters are gradually penetrating in other geographies like Latin America and South-East Asi. The emergence of South-East Asia is also underscored by India becoming an export hub for many global original equipment manufacturers (OEMs)

India is in a much better position with its low current account deficit and high forex reserves, compared to other emerging markets. With the Government’s positive stance towards policy reforms and RBI’s resolve to tame inflation and reduce volatility in the currency market, India is well prepared to withstand headwinds in the global economy. Balancing current risks, GDP growth is expected to rise to 7.4 per cent from 7.3 per cent in fiscal 2015. On the demand side, consumption revival is expected to be moderate, cushioned somewhat by lower inflation and interest rate cuts

"Despite a dull economy abroad, large inquiries in exports and futures have prompted us to go in for this IPO as our exports are growing and two-third of our turnover comes from tractors with Rs 140 crores investment set for CAPEX" - Ranbir Singh President and CEO, GNA Axles Ltd

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