The farm machinery sector in India offers a structural growth opportunity given low penetration levels (tractors/implements) and a shrinking agri workforce. Modernization in agriculture, strong government policy support, multiple reforms at play (freeing up agri trade) & strategic alliances with experienced global players have set the direction for the next leap in agri mechanization, in our view. A spate of alliances with large Japanese players by Indian tractor OEMs in the last few years (Kubota-Escorts, Yanmar-Sonalika, Iseki-TAFE, MM-Mitsubishi) opens up global growth opportunities and, more importantly, has the potential to drive India-specific product innovation & service/lease models to accelerate adoption of farm equipment. Key stocks to play this theme are- Mahindra & Mahindra (M&M) (OW, Gunjan Prithyani), Escorts (OW, Gunjan Prithyani) and
Kubota (OW, Tomohiko Sano). Please also see the September 7 report.