The Hindu Business Line : Punjab Tractors set to gain from better industry outlook

Notwithstanding the stock's performance on Tuesday, brokers believe that declining inventory levels has infused an optimistic outlook as far as the tractor industry is concerned.

"The feelgood factor has come into the tractor sector. While inventory levels in the industry are currently being touted around 45,000, there is expectation that the coming quarter could see the excess inventory being sucked up," said market sources.

"Going forward, one can expect good numbers to come through. And this is just the beginning. One will see the actual results felt over the next 12 months.''

For Punjab Tractors, analysts said that despite increase in raw material costs, increasing volume growth will happen.

"The January-March quarter should see the monsoon effect play out for the company. In fact, one could see a 10-12 per cent jump over the third quarter. That is, if there is no inventory pumping by either Escorts or M&M,'' an analyst said.

Sources maintained that the company proposes to come out with a slew of new products over the next 6-9 months.

"One reason for the company's underperformance in the past has been its inability to bring out new products. The product launches will help them regain market share.''

The company also proposes to keep its capex at a minimum and to that extent, plans to source engines for its new products from Kirloskar Oil.

"Currently there is underutilisation of capacity in the industry. Hence, there is no question of any expansion at least in the next 1-2 quarters,'' sources said.

Yet, while there is expectation of bettor times ahead for the company, the increase in raw material costs is likely to keep company margins under pressure.

"It will be some time - say over the next two quarters - before the company could look at passing on price hike to the consumer,'' an analyst with a domestic broking house said.

On exports, sources said that it would be a couple of years before any significant numbers come through.

"Post-divestment, the company is looking for global presence but that is in the long term,'' an analyst added.

Keeping pace with the bearish sentiment in the market on Tuesday, the stock ended at Rs 210.04, down 5.65 per cent with around 35,995 shares traded on the BSE.

On the NSE it closed at Rs 210.65, down 5.32 per cent with around 3.8 lakh shares traded.