John Deere India, which is a wholly-owned subsidiary of Deere & Company (NYSE: DE), is working on tractors with 35 to 40 horse power engines to address lower horse power market opportunity in India. It plans to double its market share in the next few years. As impressive as it may sound, the incremental impact will be minimal because of small market size relative to the company’s revenue.
How Significant Is Indian Tractor Market For Deere?
Indian tractor industry was down 13% in financial year 2015 and stood at about $2.4 billion. The industry has remained sluggish in 2016 so far because of lower commodity process and the drought in many parts of India. John Deere India has nearly 6% share in the Indian Tractor market, which amounts to approximately $145 million in revenue. This is less than 1% of the company’s overall sales which stood at nearly $28.3 billion globally in 2015.
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Will Deere’s Expansion Be Meaningful?
Shifting the focus from high end (50+ HP) tractors to low HP tractors (35+ HP), John Deere India is eyeing 10-12% share in Indian Tractor industry in the next two to three years. The company plans to strengthen its network in Bihar, Uttar Pradesh, Rajasthan and Jharkhand which are low HP tractor markets. Indian tractor industry is forecasted to grow at a CAGR of 8-9% over the next 5 years as the long term industry drivers remain unaffected. Government of India’s recent initiatives including crop insurance and irrigation schemes along with a good monsoon this year helped in improving farm sentiments in India.
If Deere is able to achieve 12% market share in the Indian Tractor Industry in the next 5 years, its revenue from India could rise to $425 million. This implies that the Indian Tractor market will be responsible for an annual growth of nearly 0.2% in Deere’s total revenue. However, it would still not be significant as compared to Deere’s global revenue, but will certainly help Deere in growing its presence in India.
Notes:
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2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively.
For precise figures, please refer to our complete analysis for Deere & Company
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