Siam Kubota sees lower growth due to lower demand from rice farmers

Corporate February 25, 2014 00:00

By Sucheera Pinijparakarn
The Na

4,457 Viewed

Siam Kubota Corporation (SKC), a leading producer of agricultural machinery, and its leasing subsidiary Siam Kubota Leasing (SKL) expect to see revenue growth held down by the lower purchasing power of farmers hit by the long-delayed payments from the ric

Before the payment delays by the caretaker government, SKC, a joint venture between Kubota Corp of Japan and Siam Cement Group, had expected sales growth this year of not less than 15-20 per cent, said Opart Dhanvarjor, senior executive vice president of Siam Kubota. 
But SKC, which controls 70 per cent of the rice-tractor market, believes that the delayed payments are only a short-term problem. Its Japanese major shareholder also believes that they will not result in long-term problems for the company, he said.
Normally, SKC enjoys annual sales growth of around 20 per cent, but the growth rate this year could be half that because of reduced demand for new machinery by farmers.
Last year, SKC earned sales revenue of Bt50 billion.
Opart said the agricultural-machinery market could resume when farmers finally get their money from the rice-pledging scheme. 
SKL has found that around 0.7 per cent of its total outstanding loans of Bt50 billion are held by farmers affected by the rice-payment delays, said Suksri Punyakorn, managing director of the leasing subsidiary.
She noted that the problem of delayed payments was similar to the drought and flood problems in the past, which hit around 0.6 per cent of SKL’s portfolio.
Lending to rice harvesters including for tractor purchases accounts for 60 per cent, for which customers are allowed to pay twice a year in line with the crop seasons.
For rice tractors, SKL offers loans with a six-year term and an interest rate of 7 per cent per annum.
Suksri said some farmers had asked for repayment-term extensions because they have been waiting for the payment from the government under the rice-pledging scheme.
She said the company did not want to repossess vehicles from farmers because they are key tools for their incomes. Therefore, SKL and SKC will cooperate to help the farmers in terms of knowledge-based marketing and total process solutions. The repossession rate at SKL is less than 1 per cent.
Opart said the group helped farmers by focusing on production-cost efficiency.
Meanwhile, the company will actively pursue sales for other economic crops that still have demand for agricultural machinery, such as palm, sugar cane, rubber and cassava.
“The sales ratio for rice and non-rice farming is 60:40, and we have attempted to drive the proportion of sales for non-rice farming close to that of rice farming to diversify our portfolio,” he said.
He said SKC would boost export sales to offset the risk in the domestic market, adding that currently exports represented of 20 per cent the company’s sales. Its main export markets are neighbouring countries, India, and North America.
The company will officially open business units in Cambodia on February 28 and in Laos on March 4, as both countries have good potential as export markets for SKC. However, the company will keep its production base in Thailand because of its superior supply chain.
Suksri said SKL was conducting a feasibility study in Cambodia in preparation to support leasing of SKC products.

Most view