As Hyundai prepares to come in with Nishat Mills for its South Korean models of cars and commercial vehicles, Millat Tractors has been offered a seat at the table with an 18 percent stake in the joint venture. This puts Millat, which is already at the top of its game in the tractor industry, more space to play around.
Millat Tractors is the top tractor assembler in the country occupying 60 percent of the total tractors sales annually with the second spot occupied by Al-Ghazi tractors selling the Fiat brand in Pakistan. Together with Orient, the three players manufactured over 54,000 units in FY17, which is a major turnaround since FY12.
Indeed, prominent trends witnessed in the automotive sector since FY17—though often overlooked—are tractor sales that have made an impressive comeback growing by 59 percent during that fiscal year and by 54 percent in 5MFY18 year-on-year. That is the highest segment wise growth within the automotive industry with cars, jeeps and commercial vehicles also growing considerably.
After years of going head to head with the government, seeking incentives for the tractor industry, manufacturers are now riding the way of lower sales tax (5% from 10%), and increased demand brought forward by a recovery in the agri business as well as CPEC and infrastructure related construction.
The shift in the agriculture sector has been key. Affordable financing for farmers along with a cash subsidy on fertilizers has helped. Meanwhile, Sindh government announced a subsidy for farmers on the purchase of tractors in the latest budget. Together, these have propelled demand for tractors.
Another developing source of demand is exporting markets where Millat has had the first movers’ advantage. Millat has been finding market access in Middle East and African countries since 2015 with its tractors after signing on a deal with AGCO Corporation in Africa. The company is seeking to expand its exports to other global markets. The lower costs within the sector owing to considerable backward integration should allow the sector to be competitive enough to find market access abroad.
While local demand flourishes, exports in the industry can be a promising trajectory for investment by tractor and parts manufacturers; but this would require technology modernization and diversification of product base. Forward integration for instance can help boost these exports. Areas where that may be explored are venturing into agri-implements—combined harvesters, balers and feed mixer wagons and such like—which are used as tools attached to tractors.
With Millat hoping to expand its operations and tractor sales continuing to pick up—where potential of exports is significant—this is an industry to watch out.
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