After experiencing a sharp fall in last few years, the sale of locally assembled tractors in the country is expected to rebound due to government support and improving rural economy

According to industry experts, in Federal Budget FY15, govt announced reduction in General Sales Tax (GST) from 16pc to 10pc and increased agri-credit loan target from Rs380b to Rs500b. Both of these measures will provide the much needed growth in tractors sales.

Agriculture makes 20pc of Pakistan’s GDP and consistent increase in commodity support prices (wheat support price doubled in last 5 years), rising farmers’ education on using modern techniques and booming remittances (up 166pc in last 5 years) have improved buying power of farmers in Pakistan, experts said. As rising population base and inheritance have resulted in lesser available crop area per person, farmers are more concerned on improving yields.

 In this attempt, farmers are relying more on fertilizers, pesticides and modern equipments. Higher agri-credit, mainly from Zarai Taraqiati Bank and rising remittances would also help in rising tractors sales in addition to lower GST and supportive govt policies.

Experts said that dominated by two players, Pakistan tractor sector is more like a monopoly providing opportunity to pass on increase in cost. Millat Tractors (MTL) has a market share of 64pc, followed by Al-Ghazi (AGTL) 34pc.

Tractor industry has achieved 90-95pc localisation level while cost pressures are driven by fluctuations in local input costs. MTL purchases parts from associated companies, i.e. Tipej Intertrade, Millat Industrial Products, Millat Equipment and Bolan Casting. It is observed that MTL has been able to maintain its gross margins between 17pc-18pc whereas cost pressures have been passed on in shape of price increase to the customers. MTL maintained its gross margins at 17.9pc in FY14 at a time when its sales remained lowest in last 8 years.

AGTL not only maintained its gross margins historically but also remained successful in expanding them. It was able to maintain its gross margins in the range of 17pc-22pc during 2009-13. Despite the fact that 2014 was a difficult year for tractor industry, margin expansion could be observed on the back of stronger Pak-Rupee against US-Dollar. Gross margins of AGTL have increased by 400bps to 26.1pc in 9M2014, experts added.