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%
|
--
|
