India’s Shrinking Farmland and the Migration to Cities

Acerage TrendIndia and US trends in acreage per farm plot are opposite. Farms in the US are getting larger while those in India are shrinking. Consolidation lends to economies of scale, higher mechanization rates and therefore greater productivity and profits per acre. Farmers in the US are experimenting with big data, information analytics with farmers showing as much interest in selling the data from their farms as much as their crops. Farmers in India, on the other hand, are contemplating ending their lives adding to the big bigger data points on farmer suicide statistics – at least some of them kill themselves each year. The rate however is not as alarming as it is made out to be. More people die of suicides outside of the farms. I am sure depression kills more in our cities but farmers attract attention.

India Farm Size ShrinkageThe chart above shows the general shrinkage of farm sizes across the India. The average size of farmland in India has fallen from 2.28 hectares in 1970-’71 to 1.16 hectares in 2010-’11. Punjab is an exception. If you want to sell tractors and motor pumps and pvc pipes, this is the place to hang your shingle. Increased mechanization and dwindling farm incomes forced many small farmers to quit farming, migrate to Kanaada leading to a consolidation of farmlands. In almost every other state, there is a shrinkage. It is no doubt a consequence of
increasing pressure on the land due to an ever expanding population. With lower farm plots (i.e. capital) and the low productivity rates, it is impossible for the farm incomes (return on capital) to be enough to feed the stomachs aspirations of all the strapping young village gabrus hanging around in the hinterland. Kerala and Bihar are the two states with the lowest average acreage per chhath_train_71113 [httppost.jagran.com]farm plot. It is not surprising that the villagers from these states are most likely to be found migrating to other parts of the country in search of work. Trains are best avoided during annual jaunts like the Chhath Puja when all the itinerant workers head back to their native places to take the traditional early morning dip in obeisance to the sun who no longer shines on their farms as it once used to.

Tata Motors: Driving in Reverse Gear

Tata Motors 08Sep15The stock of Tata Motors has fallen ~45% in the last 7 months! That’s a big drop for a big company. The stock’s around 10 times it’s trailing 12 months’ earnings.  Upstarts like Flipkart are getting valued more than Tata Motors. That’s surprising. Is it about the unattractiveness of the business of making cars or is it a case of over-valuation of ecommerce businesses or is it both? Tata cars are everywhere, including China. It’s quite a venerable brand not to have a Peter Lynchian roadhead moment on:

 

I am a hard working taxi driver and I have seen my share of cabs and cars (mostly cars that looked like cars) and have even heard of some feline roadhogs (read Jaguars) and then my last passenger told me about this massive 45% drop in the share price of the company that makes these things. I have this Peter Lynch moment and I want to buy this stock.

It’s the crumbling of the Chinese walls that is a part of the reason why the stock’s down. Cool Chinese have been doing uncool things like not buying Jaguars as much as they used to earlier. Things have been very bad for the company during the last couple of quarters. So bad that they chose to raise capital via a rights issue. That’s a sure shot sign of severe financial stress. Worse, the stock price kept of falling leaving the rights price level far behind. And then the unkindest cut was the skipping of dividend by the folks that run this rather complex business.

But then I am a surfer. An opportunist and a speculator. I am rooting for a 35% return on this idea.

Here’s some pointers to mull over:

  1. Commodity prices have hit rock bottom. Cars require a lot of metal to make. Should be cheaper to build a car. Selling them is a totally different matter altogether!
  2. Valuation is attractive. Trailing 12 months’ P/E of around 10.
  3. Stock’s corrected 45% now from 7 months back
  4. The technicals don’t scream a buy, but are giving a very strong hint. The next few days price action should confirm.
  5. We can (and should) forgive the management for skipping dividend for the first time in 15 years. That’s so unlike a Tata. A black swan Tata, perhaps.
  6. We can (and should) ignore the fact that the management seems to have pulled off an opportunistic rabbit from the (minority) shareholders hats by pricing the recent rights issue at 450.

 

 

Rain Rain (Please Don’t) Go Away

dailyYesterday was unusually different. We have all lived through hotter days but the combination of dryness, heat and disappointment was unique given it is just the start of September. The weathermen and all related folks consider the rainfall received in the four month period from June to September as representing the rainfall for a particular year’s S.W. Monsoon quota. Using data from the
India Meteorological Department (IMD) website, here is the story in pictures.

2015 monsoon till date has been grossly insufficient and with just Sep 2015’s data to be made available, things don’t seem to be looking too bright. With days like yesterday, I am not sure if the rest of the days left in this month will make good the gap. So, in addition to the external stories weighing down on the stock market, this internal will, no doubt, add impetus to the decline. Maybe the efficient markets have factored this in, maybe not. The Indian economy may be resilient to droughts but it is certainly not drought proof.

If you look at the charts below, the heavens have not been too kind over the last 15 years. Looks quite similar to the decade at the start of the 20th century.

SWMonsoon Variation

I think we will end the 2015 Monsoon season at the 750 – 775 mm of rainfall band.SWMonsoon Histogram

 

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