Marketing Plan for TRACTOR - Group 2

TRACTOR LTD

Marketing Plan for Tractor 12/6/2012

Presented by Group 2 Ankush Rawat – A 06 Arpit Khurana – A 07 Asish Senapati – A 08 Divyansh Bakshi– A 09 Bala Madanu – A 10

Table of Contents 1.

Executive Summary ...................................................................................................................... 4

2.

Situational Analysis ...................................................................................................................... 4 Customers ................................................................................................................................................. 4 Competitors .............................................................................................................................................. 5 Company ................................................................................................................................................... 5 Context ...................................................................................................................................................... 6

3.

Market Opportunity and Issues .................................................................................................... 6 Indian agricultural sector .......................................................................................................................... 6 Indian Tractor Industry - Key Highlights.................................................................................................... 6 Tractor Market .......................................................................................................................................... 7 Indian tractor market: Segment-wise sales .............................................................................................. 7 Utilization of Tractors in Indian Farming .................................................................................................. 7 Division of Farming land in India ............................................................................................................... 8

4.

Company Objectives ..................................................................................................................... 8 Sales Objective .......................................................................................................................................... 8 Dealer Network Objective......................................................................................................................... 9 Demand Forecast .................................................................................................................................... 10 Outlook for the year FY12-14.................................................................................................................. 10 Tractor Sales in various segments........................................................................................................... 11 Industry Sales forecast ............................................................................................................................ 11 Break even Analysis ................................................................................................................................ 12

5.

Marketing Strategy..................................................................................................................... 12

6.

Target Markets ........................................................................................................................... 13

7.

Positioning ................................................................................................................................. 13

8.

Marketing Mix – 4 P Analysis ...................................................................................................... 13 Product .................................................................................................................................................... 13 Price ........................................................................................................................................................ 14 Place: ....................................................................................................................................................... 14 Promotion ............................................................................................................................................... 15

EXHIBITS ............................................................................................................................................ 16

Exhibit 1: Interaction with Dealer ........................................................................................................... 16 Exhibit 2: Interaction with Dealer ........................................................................................................... 17 Exhibit 3: Interaction with Dealer ........................................................................................................... 18 Exhibit 4: Interaction with Dealer ........................................................................................................... 19 Exhibit 5: Interaction with Dealer ........................................................................................................... 20 Exhibit 6: Product and Price analysis of competition ............................................................................. 21 Exhibit 7: Estimation of Investment in Manufacturing Plant .................................................................. 23 Exhibit 8: Prospective Locations to establish Dealer network in South Zone......................................... 24

1. Executive Summary Tractors Ltd. aims to capture the Indian tractor market which has huge potential but very low penetration levels. The potential demand for tractors is, consequently, large, depending on growth in agriculture output and productivity. Tractor demand is likely to increase with increased government investment in irrigation, increased multiple cropping and the spread of scientific cultivation. The availability of irrigation facilities determines the degree of farm mechanization and, consequently, affects the demand for tractors in any particular region. States with a higher irrigated area have a greater penetration level of tractors. The potential in southern and western States comes from an improvement in irrigation facilities and increasing mechanization of agriculture. The southern and western States of Gujarat, Maharashtra and Madhya Pradesh are likely to be the most attractive markets for tractors in the future. Tractors Ltd. will initially establish itself in the Southern Region. This is due to the below factors 1. 2. 3. 4. 5.

Low levels of penetration of Tractors in Farming Healthy expected demand Stable monsoon outlook Increase in area under irrigation and Irrigation Facilities Increasing availability of financing options

Tractors ltd. will tie with major dealers in Southern region. We plan to set up the Corporate office and manufacturing plant in Chennai’s SEZ. Our tractors will be marketed under the brand name “Dabaang”. Tractors Ltd. aims to become one of the leading tractor company in volumes in the >40 HP tractors and 40 HP segment during the first year and then extend our product line in this segment in the 2nd and 3rd years. In our 4th year of operations, we will tap into the vast potential available in marginal farmers category by introducing 40 hp tractors and focus on the South Indian market. We would be targeting the farmers in the states of Tamil Nadu, AP and Maharashtra because these states are more or less untapped by our major competitors. We believe there is a huge scope for tractors as farm equipments as well as construction equipment in these states because of the following factors: •

More farmers are opting for multiple cropping over last decade. Country's net cropped area had remained virtually stagnant while gross cropped area increased by about 4.7%. This indicates the increased popularity of multiple cropping. Multiple cropping requires deeper tilling and that is where our higher hp tractors would be needed.

• • • •

95% of tractor sales are on credit. Credit is extended by commercial banks, state land development banks, regional rural banks and micro-financing bodies. Irrigation facilities reduce reliance on the monsoon and allow for quick yielding varieties of food -grain .This reduces the cropping cycle to 3-4 months from the traditional 5-6 months. Cost of tractors in India is the cheapest in world .The cost of a finished tractor here is as much as the cost of gear box in developed countries. Hence there exists tremendous scope for exports. Lately it is visualized that higher hp segment has the maximum growth potential Higher horse powered tractors will be the future requirement with the government intention to encourage contract farming through the leasing in and leasing out of farm lands

Competitors Mahindra holds the largest share in the tractor market. Other major competitors are FORCE, TAFE, John Deere, HMT and Eicher in 40 to 50 HP segment. After a detailed analysis we have found that our major competitive advantage lies in the features which we provide in our product which is in three models with different HP, higher capacity to lift from lower hitch point, higher fuel tank capacity and oil immersed disk brakes. Our Unique selling proposition for the >40 HP segment will be improved performance with reduced cost. With some established players already in the market and brand loyalty in the rural segment we will face some tough challenges in the initial years to get the market share and efforts are to be made to market the product properly in the rural segment.

Company We are planning to set up a plant in the outskirts of Chennai with a total investment of 20-25 crores. The total capacity which the plant can produce is 12000 units. The location of Chennai was selected keeping in mind two factors. • •

The Tamil Nadu govt. is keen on making the state the automobile hub and has agreed to allocate land at a low cost. It has also agreed to give us an initial tax exemption for the first 5 years. The close vicinity to the port will give us a strategic advantage in the long run when we start to export since there is huge scope for export of tractors.

The capacity of 12000 units is decided keeping the long run in mind. We intend to produce around 4000 units in the first year at 44.4% capacity and 7000 units in the second year at 77.78% capacity. We intend to improve on our operation and expand our production to 10000 units in the third year at 83.33% capacity. We intend to tap 3 to 4% of market share by the end of the first year and extend it to 6-7% by the end of second year and subsequently 9-10% by the end of the third year. The tractor market is highly fragmented expect for M & M which has around 45% Market share and Tafe which has 25% market share. The rest 30% market share is divided among various players. Hence, a market share of 10% by the end of 3rd year will make us one of the leading player in tractors market. We have also identified the distributor network and will be dealing with 350 dealers during the first year. These dealers will be

dealing with the dealer network which will be distributed evenly across the states we plan to operate. We plan to bolster our distributor network to 550 by the second year and 700 by the third year.

Context India's gross cropped area is next only to United States of America and Russia and along with fragmented land holdings has helped India to become the largest tractor market in the world. But it drops to eight position in terms of total tractor in use in the country when compared to international figures, only 3% of total tractors used all over the world . It is to be noted that while the overall automobile industry is facing recession the tractor industry is growing at 11%.About 20% of world tractor production is carried out in our country only. In terms of volume, India is one of the largest tractor markets in the world, besides China and the USA. The prospects of the domestic industry are highly linked to monsoon rains, which remain a key factor in determining agricultural production. Better irrigated States like Punjab and Haryana have a high tractor density (over 100 per 1,000 hectares), while States like Rajasthan, Gujarat, Himachal, Tamil Nadu, Maharashtra, AndhraPradesh, MP and West Bengal have low levels of tractor penetration—a pointer to the substantial growth potential that the latter set offers.

3. Market Opportunity and Issues Indian agricultural sector Agriculture’s contributes to India’s total GDP is declining in recent years and is currently at ~18%. Agriculture in India is currently growing at an average rate of 2.8%. But, Agriculture has always the key sector of India’s economy, and will continue to be the critical sector for the growth of Indian Economy. 68% Indian live in villages & are highly dependent on agriculture & allied activities. Agriculture accounts for ~10% of India’s exports.

Indian Tractor Industry - Key Highlights • • • • • •

The Indian Tractor Industry has developed over the years to become the largest in the world. Starting in 1960′s it had reached just about 50,000 units in the early 1980′s, but today the size Indian Tractor market has grown to over 600,000 units. Increasing Tractors are being used for haulage and non-agricultural applications as well. The opportunities are still huge considering the low farm mechanization levels in the country, when compared to other developed economies across the world. After a splendid performance during the last two to three years, the Indian tractor industry is believed to head for a slowdown, which we believe is a myth. Increasing focus on Farm mechanization

Tractor Market • • • • •

Tractor market has grown at a CAGR of 12.8%, in the last five years Sales, steady since FY07, should increase even more (as witnessed in FY12) due to rising farm income and rural growth. Demand outlook for FY12-14 remains positive. We expect the industry to grow ~11-12% YoY Tractor financing continues to enjoy priority lending status, thus attracting lower interest rates and higher participation by banks. The greater participation by NBFCs and private banks will further boost sales

Indian tractor market: Segment-wise sales • •

•

India has been predominantly a 31-40 HP market, ~42% of the industry. However, during the last 5 years, there has been a shift to higher hp tractors. The share of 40+ HP tractors has gone up from 29% in FY05 to 44% in FY11, clearly indicating the multi-use of tractors. Combined share of tractors above 40 hp has more than doubled over the last ten years

Utilization of Tractors in Indian Farming Agricultural use of tractors has been steadily increasing over the past few decades owing to green revolution and its focus in Five Year Plans by Govt. of India. Percentage share of Tractors use in Indian Agriculture Year 1971-72 1981-82 1991-92 2001-02 2005-06

Tractors 8.45% 18.46% 26.14% 36.77% 38.45%

2009-10

41.67%

With modernization of agricultural equipment, better irrigation facitlities, reduced agricultural labour and due to urbanization, there will be an increased utilization of agricultural equipment, especially tractors.

Large Farmers

Division of Farming land in India

> 20 acres 1%

Medium Farmers 5 - 20 acres

As we can clearly see, the marginal and small farmers undertake more than 80% of the agricultural activity in India.

17% Small Farmers 2.5 - 5 acres 19% Marginal Farmers < 2.5 acres 63%

Figure: Classification of farmers based on the agricultural land they hold The penetration levels are as follows: 1. Large Farmers – 46.2 % 2. Medium Farmers – 21.9% 3. Small & Marginal Farmers – 1.2% This shows that a lot of market is still untapped and this provides a huge potential for the tractor industry.

4. Company Objectives The company’s objectives are outlined below based on the demand and sales forecast.

Sales Objective FY 13 Total Units (>40 HP)

4000

FY 14 7000

FY 15 10000

Note: The sales objective has been arrived on based on the industry growth rate (sales volume), tractors ltd. targeted market share and the plant capacity.  During the fourth year of operations, we plan to enter the 40

HP > 40

* Projected Sales Figures in various segments based on trend analysis and other parameters.

Industry Sales forecast Tractor Sales Data over the past few years FY 06

FY 07

FY 08

FY 09

FY 10

FY 11

FY 12

CAGR (7 yrs)

CAGR ( 4 yrs)

FY 13

FY 14

FY 15

North 113062 137250 115423 123372 167878 168800 193816

8.00%

11.95%

209328 226082 244177

South

73813

90324

78464

66712

74881

94046

100398

4.49%

10.76%

104908 109621 114545

East

26655

31754

27568

33813

55557

61733

62816

13.03%

16.75%

70999

West

76449

92088

79978

78288

101854 155778 177709

12.81%

22.75%

200468 226140 255101

Total

292908 352827 302948 304622 402586 482286 536886

9.04%

15.22%

585430 638363 696083

80249

90703

Break even Analysis December 6, 2012 Fixed Costs Manufacturing Plant Set Up Production costs: Direct materials Direct labor Indirect production costs Selling expenses: Sales salaries & commissions Advertising Miscellaneous selling expense General expenses: Office salaries Supplies Miscellaneous general expense Totals

Variable Costs

200000000

150000.00 20000000.00 40000000.00 2500000.00 5000000.00 1000000.00 150000.00 268800000.00

200000.00 1000000.00 50000.00 5000000.00

50.00 6250050.00

Sales and Income data: Avg Selling price per unit Target operating income for the period

506670.00 10000000

Results Contribution margin per unit Unit sales at break-even point

56670.00 4566

Based on the above analysis, we expect to break even during our 2nd year of operations. Note: The above data is taken from analyzing various investments of companies in setting up tractor manufacturing factories (Exhibit 7) and also from analysis the Balance Sheet of M & M.

5. Marketing Strategy  Maintaining Customer focus while providing value for money  Increasing operational efficiency by reducing costs and increasing distribution network

6. Target Markets The target segment chosen by Tractors Ltd, is > 40 HP segment due increasing trend in sales in tractors >40 HP segment. The following factors have been considered while selecting the target market.    

Historical growth and future potential Geographical factors like irrigation facilities, nature of soil etc. Supply and demand forecasts Economical factors like availability of skilled labour, urbanization, farm incomes etc.

During the fourth year of operations, we plan to enter the < 20 HP market segment as it offers huge untapped potential. The majority of Indian farmers i.e. 63% are marginal farmers (own