AG R I C U LT U R A L E Q U I P M E N T

AG R I C U LT U R A L E Q U I P M E N T

The share of Agriculture in India s GDP has been diminishing The agriculture sector has shown a mild recovery in growth over the past 3 years Agriculture Growth rate (%) and the share of the sector in overall GDP is declining Agriculture share of GDP (%) 2004-05 10.7% 2004-05 20.8 2005-06 0.7% 2004-05 19.9 2005-06 2.7% 2005-06 18.5 2007-08 3.5% 2007-08 (est) 17.4 0 2 4 6 8 10 12 17 17.5 18 18.5 19 19.5 20 20.5 21 However, it continues to be of high significance, as more than 60 per cent of the population are involved in it The Agricultural Equipment Industry is a key sector that contributes to Agricultural growth and productivity

The Agricultural Equipment Industry spans all activities across the value chain India s agricultural equipment industry has a diverse product portfolio catering to activities across the value chain Land development, Tillage, Seed bed Preparation Sowing and Planting Weeding, Inter cultivation, Plant Protection Harvesting and Threshing Post harvest and Agro processing 1. Tractors 2. Levelers 3. Ploughs 4. Dozers 5. Scrapers 2 Drill 2 Seeder 2 Planter 2 Dibbler 2 Transplanter However, the organized market largely revolves around tractors, tractor driven devices and tillers. 2 Shovel/Plough 2 Harrow 2 Tiller 2 Sprayer 2 Duster 2 Harvester 2 Thresher 2 Digger 2 Reaper 2 Sheller 2 Sickle/ Dao 2 Seed Extraitor 2 Extraitor 2 Dehusker 2 Huller/ Dehuller 2 Cleaner 2 Grader 2 Mill 2 Dryer

The Agricultural Equipment market is driven by several factors Key Drivers for the Agricultural Equipment Industry: Driver Improved availability of credit Impact on agricultural equipment industry Emergence of Contract farming and dedicated sourcing with corporate partnership Focus on Productivity to maximize ROI from agriculture Opportunity for employment in urban areas pressurizing agricultural wages Increased competition driven by WTO Norms

There has been an increased focus on mechanization of agriculture Increased adoption of mechanization in an attempt to ensure greater RoI and sustainability of agriculture Use of power for agriculture 1971-72 0.35 1981-82 0.45 1991-92 0.80 2001-02 1.29 2005-06 1.50 2019-20 (Proj) 2 0 0.5 1 1.5 2 2.5 Total Power, kw/ha Source: FICCI, www.indiaagristat.com

There has been an increased focus on mechanization of agriculture Mechanisation primarily driven by increased use of tractors, which is replacing manual and animal labour Source of Power-Percentage share over 4 decades Agriculture worker Animal Tractor power Tiller Diesel Engine Electric Motor 0 10 20 30 40 50 60 n 1971-72 n 1981-82 n 1991-92 n 2001-02 n 2005-06 n 2019-20 (Proj) Source: FICCI, www.indiaagristat.com 6

The sector has grown steadily over the past 25 years The growth in domestic volumes has been due to an urge for productivity enhancement, aided by imminent threat of low cost imports aided by WTO Sales in numbers 400000 350000 300000 250000 200000 150000 100000 50000 0 Tractors, Sales Tillers, Sales 1982-83 1985-86 1988-89 1991-92 1994-95 1997-98 2000-01 2003-04

Exports, primarily in Tractors, have been a key driver for growth India is developing into a hub for manufacture of Agricultural Equipment, primarily tractors 2003-04 2004-05 2005-06 117.47 171.42 276.91 CARG 31% 2006-07 354.64 Consistent growth in exports at CAGR of 40 per cent in value terms Exports primarily driven by Tractors 2007-08 451.77 0 100 200 300 400 500 n Agri Equipment Exports, US$ Million Source: Export Import Data Bank, www.commerce.nic.in

Overall, the sector presents significant opportunities, tempered by increasing competition Threat of New Entrants Current players well established New entrants will need to invest in Brand, Distribution, Financing and Service Network Supplier Power Well developed supplier industry Most suppliers are small and lack of economies Competitive Rivalry Number of well established players, with new players entering Good technological capability Increased mechanisation presents new growth opportunities HIGH MEDIUM LOW

Overall, the sector presents significant opportunities, tempered by increasing competition Customer Power Wide variety of choice for customers Many customers do not have access to organised finance Threat of Substitutes New innovations in semi-automated mechanisation being tried out, in place of capital intensive equipment HIGH MEDIUM LOW 10

There are also a few key issues that impact growth in the sector Key Concerns / Dampeners Sub-optimal irrigation infrastructure Many farmers still lack access to financing and depend on unorganised moneylenders Increasing fragmentation of land, skewing cost structure of agriculture against capital investment High product life, resulting in low rate of replacement and upgradation Increasing prices of fuel leading to greater cost of operations 11

Tractors and accessories provide the most significant Investment Growth opportunity in the sector Penetration, No.s per 1000 Hectare 18.2 18.8 2.1 0.9 12.5 6.6 2 16.7 8.9 8.3 4.3 6.2 7 28.5 36.10 84.8 n Animal Drawn Seed Cum Fertilizer Drill n Tractor Drawn Seed Cum Fetilizer Drill n Animal Drawn Leveller n Tractor Operated Levellers n Manually Operated Plant Protection Equipment n Power Operated Plant Protection Equipment n Drip & Sprinkler Equipment n Horticultural Tools (Power Operated) n Tractors n Power Tillers n Tractor Operated Dise Harrow n Tractor Operated Cultivator n Tractor Operated Rotavator n Potato Digger n Straw Reaper n Forage Harvester 0 10 20 30 40 50 60 70 80 90 Tractors and related equipment have low penetration indicating high growth potential 12

There are several states that provide attractive investment opportunities Several factors are considered for assessing the attractiveness of a location for investment Factor consolidation for manufacturer Demand conditions Government subsidy to farmers for purchase of agricultural equipment Consolidation of farms Irrigation Infrastructure Current share of industry output Proximity to regional markets Subsidisation of Agricultural Equipment (US$ million) Andhra Pradesh Karnataka Bihar Orissa Rajasthan Madhya pradesh Uttar Pardesh Gujarat Maharashtra Haryanna West Bengal Tamil Nadu 0 2000 4000 6000 13

There are several states that provide attractive investment opportunities Based on the above factors, Punjab and Maharashtra emerge the most attractive destinations for investment in this sector. Share of Agricultural Equipment Output 2% 9.2% 3% 0.5% 3.1% 36% 3.7% 5.1% 21.0% 6.5% 6.7% 6.7% 6.7% 0.2% 11.5% n Punjab n Uttar Pradesh n Haryana n Rajasthan n Madhya pradesh n Gujarat n Maharashtra n Bihar n West Bengal n Karnataka n Andhra Pradesh n Others 14

Profiles of Key Consumer Durables Players in India Mahindra & Mahindra Limited (M&M) Distribution and sale of farm equipment and related utility vehicles Established market leadership in the sector over past 24 years One of the top five tractor brands in the world, the company has its own state-of-the-art plants in India, USA, China and Australia and has a capacity to produce 1,50,000 tractors a year 15

Profiles of Key Consumer Durables Players in India Tractors and Farm Equipment Limited (TAFE) A unit company of the Amalgamations Group, one of India s largest Light Engineering Groups Collaboration with AGCO Corporation, Georgia, one of the largest manufacturers, designers & distributors of agricultural equipment. Has a network of more than 500 dealers, branches, service outlets as well as its own sales offices and depots covering the entire length and breadth of India 16

Profiles of Consumer Durables Players in India John Deere John Deere established a green field project in 1999 under a 50:50 joint venture with Larsen & Toubro Limited (L&T) A state of the art tractor manufacturing plant for 5000 series John Deere tractors was set up at Sanaswadi, near Pune, in the state of Maharashtra Tractors manufactured in Sanaswadi are also exported to the USA, Mexico, Turkey, North and South Africa, and South East Asia. The company has received awards for export excellence in 2005 and 2006 from the Engineering Export Promotion Council. 17

DISCLAIMER This presentation has been prepared jointly by the India Brand Equity Foundation ( IBEF ) and KPMG Advisory Services Private Limited ( Author ). All rights reserved. All copyright in this presentation and related works is owned by IBEF and the Authors. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of the Author s and IBEF s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. The Author and IBEF neither recommend or endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed in this presentation. Neither the Author nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation. 18