Credit Suisse said it is optimistic for the manufacturers of Mahindra NSE -0.88% and Mahindra and Escorts NSE -2.43% tractors, since agricultural loan exemptions tend to boost the growth of the industry.
Rajasthan, Madhya Pradesh and Chhattisgarh, the three states that have recently announced agricultural loan exemptions, account for about 25 percent of the demand for tractors in India.
According to the Credit Suisse report, the main political parties in the country are moving towards the exemption of agricultural loans as a populist measure for agricultural suffering.
Last year, Maharashtra, Uttar Pradesh and Punjab announced agricultural loan exemptions, while Ka
ataka announced an exemption earlier this year.
"We continue to be constructive with the names of the tractors: M & M, Escorts ... we do not believe that the cycle has reached its maximum point yet and the valuations of both names of the tractors are very attractive in 10 times the fiscal year 19" , said Credit Suisse.
The financial services firm said the national agricultural loan exemption, which was announced in 2008, combined with other stimulus measures, had driven the growth of demand for tractors in FY09 and FY10.
The big ones were implemented in Andhra Pradesh, Uttar Pradesh and Maharashtra, and all of them have increased the demands of tractors in the year in particular when they were implemented, said Credit Suisse.
The financial services firm said the other conce
is about the impact on agricultural credit post these farm loan waivers but past instances do not suggest any meaningful change in trends.
Credit Suisse has an outperform rating on Escorts with a target price of Rs 1,050. The firm believes that Escorts is well placed to benefit from volume growth in the tractor industry as well as pick up in construction equipment and railways demand.
Credit Suisse’s outperform rating on Mahindra & Mahindra with a target price of Rs 1,020 reflects expectations that M&M will benefit from growth in utility vehicles volumes as well as tractors NSE 0.66 %.
Read more- Escorts Group Unveils India’s First Autonomous Tractor Concept
Farm-loan waiver may boost tractor volume, give M&M, Escorts a lift: Credit Suisse
Jan 16, 2019