Tractor sales in FY26 pegged at record 9.75 lakh units; Rs 4k-cr capex likely: Crisil

New Delhi: Higher minimum support prices for key cash crops, better replacement and construction demand amid hopes of above-normal monsoon are likely to drive domestic tractor sales to hit an all-time high of around 9.75 lakh units in 2025-26, growing at 3-5 per cent, according to Crisil Ratings.

A strategic capex cycle worth Rs 4,000 crore is around the corner in the Indian tractor industry with capacity utilisation nearing optimal levels of 75-80 per cent and the push for cleaner technologies under TREM V, the analytics firm said in a statement.

The emission norm of 'TREM V' is expected from April 1, 2026, pre-buying towards fiscal-end may also provide a fillip to volume, it added.

"As a result, tractor sales this fiscal year are expected to surpass the peak of 9.45 lakh units achieved in fiscal 2023, sustaining the back-to-back volume growth seen during fiscal 2019," it noted.

There was a healthy 7 per cent increase in sales in FY25, Crisil Ratings said.

The Indian Meteorological Department's forecast of above-normal monsoon should lift rural sentiment and reinforce farmer confidence, which is crucial for driving farm investments such as tractors, Crisil Ratings Senior Director, Anuj Sethi said.

"This, along with the expected rise in MSP for key cash crops, and pick-up in construction activity, especially roads, supported by sizeable government allocation in the Union Budget for this fiscal, should help drive 3-5 per cent volume growth for tractors this fiscal," he noted.

Besides, Sethi said, "the anticipated TREM V-driven price hikes from April 2026 could trigger pre-buying in the last quarter of fiscal 2026, providing a boost to volume."

Crisil said the rollout of stricter emission norm TREM V across all horsepower (HP) segments is expected to increase tractor prices 10-20 per cent, depending on engine capacity.

A similar trend played out post the TREM IV, which was implemented on January 1, 2023, when above-50 HP tractor sales dropped, and farmers pivoted to 41-50 HP models -- the dominant segment with 64 per cent share -- highlighting their sensitivity to price hikes, it added.

Rising volumes and easing input costs should keep the operating margin of manufacturers stable at 13.0-13.5 per cent this fiscal, in line with the past two fiscals. With strong cash flow, low debt and robust liquidity, tractor makers are well-positioned to invest in capacity and upgrade emission control technologies, it added.

Crisil Ratings Director, Poonam Upadhyay said tractor manufacturers have entered FY26 on a strong footing with margins stable at 13-13.5 per cent on softer input costs and sustained volume growth.

"With capacity utilisation nearing optimal levels of 75-80 per cent and the push for cleaner technologies under TREM V, a strategic capex cycle is around the corner, worth Rs 4,000 crore," Upadhyay said.

Crisil Ratings, however, said the spatial and temporal distribution of monsoon and its impact on agriculture and rural incomes, movement in commodity prices and interest rates, and implementation of emission norms will remain monitorables over the medium term.