VST Tillers Tractors Ltd. share price target

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...

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...

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...

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...

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%.

VST Tillers & Tractors (VST) reported a mixed Q1FY18 performance driven mainly by higher other income (~| 14.8 crore) and robust tractor performance while power tillers failed to deliver growth Net sales in Q1FY18 came in at | 181.2 crore, up 4.8% YoY In Q1FY18, power tiller sales volume were at 7119 units (down 2.5% YoY) while tractor sales volume was at 2555 units (up 18.4% YoY) EBITDA in Q1FY18 was at | 24.5 crore, with corresponding EBITDA margins at 13.5%. PAT during the quarter was at | 28.2 crore...

ICICI Securities Ltd | Retail Equity Research VST Tillers & Tractors (VST) reported sales volume for June 2017. Power tiller sales volume for the month came in at 4099 units, up 23% YoY (3330 units in June 2016). Tractor sales volume for the month was at 954 units, up 6.1% YoY (899 units in June 2016) For the quarter, power tiller sales volume was at 7119 units, down 2% YoY while tractor sales volume was at 2555 units, up 18% YoY This is line with the management guidance of clocking 28000 power...

V.S.T. Tillers Tractors (VSTT) reported a ~12% YoY growth in revenues during 4QFY17. The company sold 7,766 tillers (down 2% YoY basis; up 92% on a QoQ basis), while tractor volumes came in at 2,567 units (up ~33% YoY). The tiller business contributed to a little over INR 1 bn while tractor sales stood at INR 750 mn. At the operating level, EBITDA numbers came in flat as margins contracted to 14.6% as compared to 16.3% in same quarter last year. Performance in the quarter is in line with the guidance that was provided by the management earlier during the year gone by there were higher investments made towards...

ICICI Securities Ltd | Retail Equity Research VST Tillers & Tractors (VST) reported a mixed performance in Q4FY17 amid a strong rebound in power tillers segment in March 2017 and robust performance in the tractor segment Net sales in Q4FY17 came in at | 197.2 crore, up 11.2% YoY In Q4FY17, power tiller sales volume were at 7766 units (down 2% YoY) while tractor sales volume were at 2567 units (up 33% YoY) EBITDA in Q4FY17 was at | 28.8 crore, with corresponding EBITDA...

Exemplary Performance Reported in March 2017, to End FY17 on a High: VST Tillers Tractors Ltd has reported on Apr 3, 2017 indicating exemplary sales volumes for March, 2017. During March, 2017 under the power tiller segment, the company was able to record sales of 4625 units Vs 1527 units in February, 2017 marking a growth of 202.9% MoM. Under the tractors segment, the company recorded a stellar growth by making sales of 1398 units in March, 2017 Vs 651 units in February, 2017 marking a growth of 114.7% MoM.

New Product Launches Lined up for the next Fiscal; FutureOutlook Promising: Revenue from operations for VST Tillers Tractors Ltd in Q3FY17 have declined toRs. 1446 Mn Vs Rs. 1518 Mn in Q3FY16 marking a drop of 4.7% YoY which made Q3FY17 the first quarter to record negative growth in past 7 quarters. The mundane performance in Q3FY17 came as a result of demonetization, drought in keyclientele states like Karnataka, Tamil Nadu and Kerala and delay in implementation of subsidy schemes in Andhra Pradesh, Orissa, Karnataka and Assam.