• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

S. Muralidhar

Sliding in the market sweepstakes.

INVESTORS can consider offloading their holdings in Punjab Tractors (PTL) at the current price of about Rs 196.

While those with a higher appetite for risk may want to retain a portion of the holdings in their portfolio for potential long-term returns, others can re-enter the stock at lower prices.

PTL has had a slide in its status within the tractor industry, though its own performance parameters have been fairly consistent with industry trends. The company witnessed steady erosion in its market share and profitability in the past few four years. The tractor industry was reeling under the influence of consecutive years of drought and a correction of inventories during the three years 2000-01 to 2002-2003.

While PTL's production and sales trend tracked the performance of the industry as whole, the company has under-performed its peers at the top during the last five quarters.

Now, with a market share of about 13 per cent, PTL could well end the current year as merely the fourth largest tractor manufacturer, a considerable fall from being ranked the second with a market share of 18.1 per cent just two years ago.

When pitted against the performance of some of its peers in the industry such as market leader, Mahindra and Mahindra, PTL's performance during the first half of the current fiscal is less inspiring.

The company's stake in the market has also been threatened by the re-emergence of Escorts (which had its own share of problems during the last two years) and TAFE, both of which have posted a good jump in sales numbers during the first six months of the current fiscal. Two other tractor manufacturers — Eicher and Sonalika — are also growing at a faster pace and could pose a threat to PTL's position in the long run.

The highlights of PTL's performance during the first half of the current year were the 50 per cent jump in operating revenues at Rs 371.7 crore and the 76 per cent rise in post-tax profits at Rs 20.8 crore compared to the corresponding previous period.

PTL's bottomline also received a boost from the Rs 2.6 crore fall in interest charges recorded during the first half of the current fiscal. In terms of margins, the company's net profit margin rose to 5.6 per cent during this period, compared to 4.8 per cent during the first half of 2003-04. The tractor industry's fortunes have improved dramatically this fiscal with a near 43 per cent increase in volume sales during the first six months.

While this has been partly due to the excise duty exemption that the Government has extended from July this year, the other factors that may be relevant here are also the pent up demand for tractors and the fairly good monsoon that the country has received this year.

For PTL, one of the bigger issues to address will be its overweight focus on higher horsepower (HP) tractors in the 51 HP plus category, where it has a market share of about 48 per cent. But this segment itself only constitutes about 8 per cent of the tractor market.

On the contrary, in the 30-40 HP category of tractors, which constitutes over 50 per cent of the total market, PTL only has a market share of about 15 per cent.

Here M&M and TAFE have a bigger presence. Tractor buyers in this segment are also more price sensitive and, hence, manufacturers such as Sonalika have managed to make considerable inroads.

PTL has launched two tractors — a 34 HP and a 41 HP — in the high volumes category and is also aggressively pushing for higher exports. But these efforts may not bring in the necessary spurt in volumes needed to improve its standing in the industry.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Portfolio management service — This can pay off for the well-off

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line