Farm sentiments are bullish with VST seeing healthy demand for its product profile. Key highlights from the call include: (i) VST expects tractor sales volume to grow ~10-15% in FY21E with power tiller sales volume growth guidance at 15-20% in FY21E; (ii) Noticeably, more and more farmers are buying power tiller on cash basis (~58-59% in July 2020) and not withholding purchase for want of state subsidies, a big positive surprise; (iii) VST is in final stages of negotiation for tie-ups in the contract manufacturing space for power tillers given the import restrictions (lower price points;...

We believe VST Tillers Tractors (VSTT) is poised for strong growth given its market leadership in power tillers (~50% market share), ready capacity, focused growth in tractors and debt-free status.

The EBITDA margin profile has been muted in the recent past amid material costs pressures and high provisioning for bad debts. The EBITDA margin profile has deteriorated quite significantly from being steady 15%+ till FY18 to 3.2% in FY20. With management guidance of worst behind them they foresee regaining the margin glory. Conservatively, we bake in 10% EBITDA margins for FY21E and 12% for FY22E. VST is also developing innovative solutions in the higher hp tractor segment and is hopeful of tasting success...

The VST Tillers & Tractors stock witnessed a sharp re-rating tracking the weak P&L; performance and consequent deterioration of return ratios in the recent past. Return ratios for VST have corrected from consistent 20%+ RoCE levels seen till FY18 to 11.5% in FY19. With limited margin improvement guidance, we foresee return ratios remaining below 10%, which is below our comfortable range. VST is a net cash positive company (cash & investments on books at ~ | 150 crore) but its incremental spend on new product development catering to the >15 hp crowded tractor space...

Background: Founded in 1967 the VST tillers & tractors is a key player in the domestic farm equipment industry. The company is engaged in the manufacture and sale of power tillers, tractors, rice transplanters, power reapers and auto components. In addition to domestic markets the company also exports its products to Africa, Russia, and Myanmar and component parts to UK & Europe. Promoted by VST Motors as a joint venture with Mitsubishi Heavy Industries Ltd, Japan, the company is largest manufacturer of Power Tillers in India with ~45% market share. The company operates through a network of ~250 dealers and 300 vendors all over India, who are associated with the company for decades. The manufacturing facilities...

Leader in power tiller segment, subsidy linked business prevails Power tiller is a farm equipment precursor to tractor used for agricultural activities. Given the higher share of small and marginal farmers domestically (~85%), we were of the opinion that power tiller segment will benefit from government thrust on farm mechanisation and be a preferred choice for domestic farmers given its price of ~| 1.25-1.5 lakh/unit vs. > | 2.5 lakh /unit for tractors. The segment, however, is highly dependent on government subsidies and, hence, has an uncertain outlook. VST is the market leader in...

VST Tillers & Tractors (VST) continued to report dismal numbers amid a fall in sales volume and muted EBITDA margin trajectory Power tiller volume in Q3FY19 was at 4,507 units, down 35.6% YoY while tractor volume was at 2,063 units, down 2.3% YoY Net sales in Q3FY19 came in at | 146.0 crore, down 11.9% YoY EBITDA for the quarter was at | 13.4 crore with consequent operating margins at 9.2%. Margins came in lower tracking higher other expenses amid controlled raw material & employee costs...

ICICI Securities Ltd | Retail Equity Research VST Tillers & Tractors (VST) reported a dismal Q2FY19 performance. Topline de-growth of 20% YoY was following the de-growth in sales volume. The real dampener was, however, EBITDA margin that came in muted at 1.9% vs. the usual run rate of 13-15% Power tiller volume in Q2FY19 was at 5,396 units, down 24.2% YoY while tractor volume was at 2,087 units, down 18.3% YoY Net sales in Q2FY19 came in at | 144.6 crore, down 20.2% YoY...

VST Tillers and Tractors (VST) reported a weak performance for 2QFY19, with PAT coming in at 41% below our estimate. Net sales at Rs1.4bn were 4% below our estimate, while margins at 1.9% were significantly below our estimate of 12.2%. Absolute EBITDA at Rs28mn fell 85% YoY because of lower margins. Lower margins were because of multiple one-time costs in 2QFY19 which were included in other expenses. One-time costs include CSR, repairs, higher freight costs, higher power and fuel costs and also higher new product launch expenses. Also, in 2QFY19 the company made a provision of Rs35mn for an incidence of fraud done by its employees, of which Rs3.7mn has been...

VST Tillers & Tractors' (VST) monthly sales in recent months have been below expectations, with the overall volume falling 17% YoY. Tiller volume at 9,611 units declined 14% YoY on YTD basis and tractor volume at 3,213 units slipped 26% YoY. Lower volume in recent months can be attributed to the delay in subsidy release in states like Andhra Pradesh, Karnataka and Maharashtra. Tiller volume managed to report YoY growth in the past two months, while tractor volume continues to register a double-digit decline. With the onset of the festive season, we expect VST's tractor volume to improve in the coming months. Subsidy has been released in Andhra...

ICICI Securities Ltd | Retail Equity Research VST Tillers & Tractors (VST) reported a muted performance in Q1FY19, primarily tracking ~25% de-growth in sales volume Power tiller sales volume in Q1FY19 came in at 5,367, down 24.6% YoY while tractor sales volume was at 1,927, down 24.6% YoY Net sales in Q1FY19 came in at | 145.6 crore, down 19.6% YoY EBITDA in Q1FY19 was at | 18.5 crore, with corresponding EBITDA margins at 12.7%. Margins came in lower tracking negative operating...

Domestic tractor sales volumes to continue growth momentum from previous year, and increase by 18-20% in FY18, on the back of a second consecutive near normal monsoon and favorable farm sentiments. Tractor sales to further improve by 11-13% in FY19 over the high base this fiscal, with assumptions of a normal monsoon and increased government support. The management expect the growth to be in line with the industry. In India today, 62% of the population depend on agriculture and out of that 62% population, 80% are marginal farmer, these are the farmers who own less than...

ICICI Securities Ltd | Retail Equity Research VST Tillers & Tractors (VST) reported muted sales volumes in Q1FY19 on both the power tillers and tractors front. For June 2018, power tiller sales volumes came in at 2948 units (down 28.0% YoY) while tractor sales volumes were at 871 units (down 8.7% YoY) For Q1FY19, power tiller sales volume came in at 5,367 units, down 24.6% YoY while tractor sales were at 1,927 units, down 24.6% YoY The weak performance by the company in the less than 30 hp tractor...

VST Tillers and Tractors (VST) reported a muted performance for 4QFY18, with margins coming in at 17.3% versus our estimate of 18.0%. Net sales, at Rs2.4bn, grew 25% YoY but were 6% below our estimate. Absolute EBITDA at Rs417mn grew 43% YoY, but was 10% below estimate on account of higher commodity costs. Raw material expenses stood at 65.1% of sales against our estimate of 63.0%, leading to gross margin coming in ~210bps below estimate. Higher-than-expected other income resulted in PAT miss of 4%. PAT at Rs334mn was up 59% YoY and 7% QoQ. The company, at the post-result conference call, indicated that 27HP Virat Plus and Samrat...

VST Tillers and Tractors (VST) reported a strong performance, with margins coming in at 17.5% versus our estimate of 15.1%. Net sales, at Rs1.66bn, grew 17% YoY and were 3% below our estimate. However, absolute EBITDA at Rs290mn grew 54% YoY and 19% QoQ because of strong EBITDA margin expansion. The company's margins rose because of improved tiller sales which led to better fixed-cost absorption as well as one-time Goods and Services Tax benefit of Rs34mn. PAT of Rs314mn was sharply above our estimate by 65% because of higher other income and a lower tax rate. The company, at the post -result conference call, indicated that 27HP Virat Plus and Samrat tractor models have been doing well and it was unable to meet the...

ICICI Securities Ltd | Retail Equity Research VST Tillers & Tractors (VST) reported a robust Q3FY18 performance primarily tracking one time input tax credit of | 3.4 crore and higher other income incorporating mark to mark gains on investment book Power tiller sales volume in Q3FY18 came in at 7,003 units, up 73.3%YoY while tractor sales were at 2,111 units, down 12.4% YoY Net sales in Q3FY18 came in at | 165.7 crore, up 14.6% YoY EBITDA in Q3FY18 was at | 29.0 crore, with corresponding EBITDA...

VST Tillers' (VST) 2QFY18 numbers were below our expectations as the company reported lower-thanexpected sales and margins, leading to lower earnings. Net sales at Rs1.75bn grew 4% YoY, but fell 3% QoQ and were 7% below our estimate. Lower sales were because of an inferior product mix and Goods and Services Tax or GST impact during the quarter. EBITDA margin at 13.9% improved 33bps QoQ, but was 140bps lower than our estimate following higher employee costs and higher other expenditure. Gross margin for the quarter improved 100bps QoQ. The company's management at the conference-call indicated that new permits have resumed in Andhra Pradesh for tillers and it expects good momentum in tiller sales to continue in 3QFY18/4QFY18. The management gave guidance of 27,000 tiller sales for FY18, while for tractors it expects the strong momentum to continue. As regards...

ICICI Securities Ltd | Retail Equity Research VST Tillers & Tractors (VST) reported a muted Q2FY18 performance primarily tracking lower sales realisations and higher overhead costs Power tiller sales volume in Q2FY18 came in at 5,888 units, down 8.1% YoY while tractor sales were at 3,129 units, up 24.8% YoY Net sales in Q2FY18 came in at | 175.5 crore, up 0.5% YoY EBITDA in Q2FY18 was at | 24.4 crore, with corresponding EBITDA margins at 13.9%. PAT during the quarter was at | 18.7 crore...

Growth outlook: The management expects strong double-digit growth in tractor volume and hopes to sell close to 11,000-12,000 tractors in FY18. In the tiller segment, the company expects to sell close to 27,000 tillers in FY18, implying high single-digit growth. Four-year outlook: The company is looking at strong growth in tractors in the next three to four years and aims at strong market share gains by FY21. The company has set a target of selling 36,000 tractors by FY21 versus 11,00012,000 expected in FY18. In the tiller segment, the company expects to sell 35,000 tillers by FY21 versus 27,000 expected in FY18....

Robust Operations Strategy in Place; New Product Launchesto Amplify the Growth Momentum: Revenue from operations for VST Tillers Tractors Ltd for Q1FY18 stood at Rs. 1,812 Mn, marking a growth of 1.7% YoY. EBITDA margin saw some pruning during Q1FY18 and was recorded at 13.5%, marking a decline of 70bps from FY17 level of 14.2%.