VST Tillers Tractors Ltd

VST Tillers Tractors: Dual benefit 

On-time monsoon and subsidy schemes augur well for growth

Incorporated in 1967, VST Tillers and Tractors (VST), with manufacturing plant locatedin Bangalore, is the largest player in the power tillers segment in India. producing 20horse power (HP) tractors, paddy transplanters, diesel engines. The company hastechnological collaboration with Mitsubishi Heavy industries and Mitsubishi Corporation,Japan, for manufacture of power tillers and diesel engines and Mitsubishi AgriculturalMachinery company, Japan, for tractors. VST has a nation-wide network of dealers supportedby sales and service. With nearly 50% market share in the power tillers business and morethan 20% market share in tractors (less than 20 HP segment), it is very strong in rest ofIndia except for the eastern market.

Power tiller is the two-wheeler version of the tractor meant for farmers with smallerland holdings and for those who cannot afford tractors. Increasing rural income due torising minimum support price (MSP), fragmented land ownership, lack of labour, and nuclearfarmer family will drive demand for tillers and low HP tractors.

Sales are mainly dependent on monsoon and state governments’ subsidy schemes.State governments on an average provide subsidy of Rs 45000 for a power tiller, whichcosts around Rs 1.2-1.3 lakh per unit. About 65-70% of VST’s total sales of tillersare subsidy-driven.

Monsoon was below normal at 92% of long period average in the fiscal ended March 2013(FY 2013). Also, rainfall was very uneven and in June 2012 there was hardly any rainfallacross India. Southern states, which are predominately dependent on rainfall, saw anear-drought situation.

More than 50% of VST’s total sales come from the southern market. Apart from poormonsoon in the southern market, there was no subsidy scheme in Andhra Pradesh (AP) andTamil Nadu in FY 2013. Disbursement of subsidy in Maharashtra, which normally starts inFebruary and March every year, was delayed last year and started only late July. 

Overall, these conditions resulted in pressure on VST’s sales in FY 2013, whichwere down about 9% over FY 2112 . About 23,000 tillers were sold in FY 2013 compared with26,000 in FY 2012, while tractors sales were more or less flat at 6,000 units.

Till early July 2013, southwest monsoon (June-September), which accounts for two-thirdof overall rainfall in a year, was 32% above normal. This is so far the highest in 12years. Rains in most parts of India and even in the south, especially in Kerala and TamilNadu, are above normal.

Lok Sabha elections are expected in May 2014 and five states will go to polls beforethat. Various state governments have announced subsidy schemes and other initiatives forfarmers. Subsidy schemes have already started in AP and are expected to start very soon inTamil Nadu.

All these resulted in strong demand for power tillers and tractors in the June 2013quarter. This trend is likely to continue. Further, flattish-to-lower raw material pricesand withdrawal of most dealer-end discount will increase, if not retain, VST’smargin.

 Assets worth of Rs 25 crore-Rs 30 crore were capitalised at the Hosur plant in FY 2013.Further capex of about Rs 37 crore will be done in H1 of FY 2014 to increase the tractorcapacity and move up the value chain from 18 HP to 22 HP tractors. The new capacity willbe commissioned in July 2013 and be fully operational from September 2013.

ales of 22HP tractor have started in Gujarat and Maharashtra. Currently, VST Tillersdoes not have capacity to sell in other states. Once the expansion is fully commissioned,there will be sufficient capacity to take care of demand from the southern market as well.This expanded capacity will result in new capacity for tractors and shift in the tractorcapacity from the existing tillers plant, resulting in more capacity for tillers also.

VST had networth of Rs 235.74 crore end March 2013. Against this, long-term liabilitiesare only Rs 18.64 crore. It repaid the entire short-term borrowing of Rs 15.99 crore in FY2013. Despite fixed assets (including capital work-in-progress) increasing by about Rs 29crore in FY 2013, cash and bank balance stood at Rs 32.92 crore. Any loans taken forexpansion in FY 2014 also will be repaid by end of the year.

Even though a large part of tiller sales is subsidy-driven, the sales model is suchthat VST’s receivables are not blocked. This is duly reflected in its strong balancesheet and little interest outgo. We expect the company to register EPS of Rs 68.7 in FY2014. At the current market price of Rs 401, the scrip is trading at 5.8 times itsexpected FY 2014 earning.

VST Tillers Tractors: Financials
	0903(12)	1003(12)	1103(12)	1203(12)	1303(12)	1403(12P)
Total Operating Inc	274.14	344.54	427.25	530.64	481.66	602.08
OPM (%)	15.6	18.1	16.4	13.7	15	15.2
OP	42.66	62.29	70.02	72.8	72.15	91.52
Other income	4.82	2.77	4.04	4.63	2.1	2.25
PBIDT	47.48	65.06	74.06	77.43	74.25	93.77
Interest	0.53	0.67	0.75	0.86	1.28	2.25
PBDT	46.95	64.39	73.31	76.57	72.97	91.52
Depreciation	2.81	2.59	2.27	3.21	3.35	5.15
PBT	44.14	61.8	71.04	73.36	69.62	86.37
Total Tax	15.23	19.47	24.85	23.43	21.05	26.99
PAT	28.91	42.33	46.19	49.93	48.57	59.38
EPS *	33.5	49	53.5	57.8	56.2	68.7

source: capital market 

Narration	Mar 04	Mar 05	Mar 06	Mar 07	Mar 08	Mar 09	Mar 10	Mar 11	Mar 12	Mar 13	Trailing
Period	12 months	12 months	12 months	12 months	12 months	12 months	12 months	12 months	12 months	12 months	12 Months
Sales	103.38	111.23	130.51	163.36	189.82	275.73	345.76	427.25	530.64	481.66	500.68
Export Percentage	6.69%	9.02%	6.63%	9.52%	9.39%	5.50%	2.95%	2.93%	1.78%	3.28%	--
Operating Profit	12.13	12.20	15.35	22.48	24.81	45.11	65.35	70.29	72.86	72.16	77.84
OPM	11.73%	10.97%	11.76%	13.76%	13.07%	16.36%	18.90%	16.45%	13.73%	14.98%	15.15%
Other Income	0.56	0.38	0.37	0.50	0.70	1.91	1.18	2.22	4.63	2.10	3.12
EBIDT	12.69	12.58	15.72	22.98	25.51	47.02	66.53	72.51	77.49	74.26	80.96
Interest	1.53	1.71	1.37	0.69	0.76	0.81	0.97	0.97	0.86	1.28	1.39
Depreciation	2.25	2.99	2.71	2.73	2.90	2.81	2.59	2.27	3.21	3.35	3.51
Profit before tax	8.90	7.89	11.63	19.55	21.84	43.40	62.97	69.27	73.42	69.62	76.06
Tax	3.28	2.95	4.14	7.01	7.86	15.23	19.47	24.85	23.24	21.05	23.13
Net profit	6.10	5.86	7.42	12.55	14.40	28.91	42.33	46.19	49.93	48.57	52.93
Dividend Payout	23.61%	24.57%	23.32%	18.33%	20.00%	14.94%	15.31%	16.84%	15.58%	16.02%	--