VST Tillers Tractors Ltd. (VST) CMP - Spark Capitalmailers.sparkcapital.in/uploads/Narayanan/VST Tillers_Company Update... · VST Tillers Tractors Ltd. (VST) CMP Rs. 429 Target NA

VST Tillers Tractors Ltd. (VST) CMP

Rs. 429

Target

NA

Rating

NA

1

Stock performance (%)

1m 3m 12m

VSTT 7% 14% -4%

Sensex 7% 6% 6%

VST is the leader in Indian power tiller industry with a strong presence in the ~20hp tractor segment. FY13

witnessed weak tiller and tractor volumes due to below normal monsoon and delay in implementation of subsidy

schemes by state governments. Monsoon this year has been above normal and our channel checks suggest that

most state govts. have announced subsidy on time, driving tiller and lower hp tractor volumes upwards. Over a

medium term we expect VST’s growth to be driven by central government push to improve farm power

availability (to increase farm yields) and introduction of new products in the 18.5 & 22hp tractor space.

We expect a revenue and PAT CAGR of 21% and 16% from FY13-15 and expect VST to maintain its leadership in

the power tillers space. In tractors, while VST would remain a small player, it would continue to maintain a strong

presence in the 18.5 & 22hp segment by way of new launches and expanded capacity. The stock trades as 5.7x

FY15 EPS, which we believe leaves room for strong upside.

Increase in farm power requirement: Government push by way of direct subsidies on tillers/small tractors and by

setting up custom hiring centers is expected to drive demand for tillers/small tractors. VST, being the leader is expected

to be one of the key beneficiaries of improving demand. Moreover, our channel checks suggests that the depreciating INR

has made Chinese tillers more expensive (price is the USP). Also, at the beginning of FY14, govt approved a ~7% price

hike for VST. With 18% tiller volume CAGR for 10 year prior to FY13, we believe FY13 was an aberration and expect

volumes to pick-up in FY14 & FY15

New products and capacity: The new plant at Hosur is expected to be operational in November-2013, taking capacity of

tillers to ~60,000 and tractors to ~30,000 units (from 10,000). In the past, VST has also had issues with vendor capacity

and supply chain. While the issues have largely been resolved, new products roll out (two wheel drive variants, 22 hp

tractors, high speed variants) coupled with an existing large network of 150+ dealers is expected drive revenue growth

Maintaining balance sheet quality and capital efficiency: Being largely dependent on subsidies, receivables could

remain elevated. However, over the last ten years VST has successfully kept a check on working capital (except for

FY12) by way of higher dealer deposits, Incentives & marketing expenses payable to dealers and advances from dealers.

VST is debt free and has maintained ~25% RoE over the last 10 years.

Payout and valuations: Dividend payout has averaged 19% over the last 12 years, however last five year average is

16% (reduced for capex of new plant). Stock has traded at average 7.3x fwd PE in the last four years. Currently at 5.7x

FY15 EPS. We believe valuations are attractive given the earnings growth and balance sheet quality

Financial summary

Year Revenues (Rs. mn) EBITDA (Rs. mn) Adj. PAT (Rs. mn) Adj. EPS (Rs.) P/E(x) EV/EBITDA(x)

FY13 4,817 722 486 56.2 7.6 4.7

FY14E 5,957 863 576 66.6 6.4 3.9

FY15E 7,055 986 654 75.7 5.7 3.3

Quality play on farm mechanisation and improving penetration in agri-machinery

Find Spark research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset

Date Sep 23, 2013

Market Data

SENSEX 19901

Nifty 5890

Bloomberg VSTT IN

Shares o/s 8.6mn

Market Cap Rs. 4bn

52-wk High-Low Rs. 526-330

3m Avg. Daily Vol Rs. 4mn

Index member BSESMCAP

Latest shareholding (%)

Promoters 53.9

Institutions 7.6

Public 38.6

Mukesh Saraf

[email protected]

+91 44 4344 0041

Narayanan Ravindranathan

[email protected]

+91 44 4344 0020

Company Update

mailto:[email protected]

mailto:[email protected]


Rs. 429

Target

NA

Rating

NA

2

Corporate Factsheet

Promoter Background

V.S.T Tillers Tractors Ltd (VST) was incorporated in 1967 in Bangalore. Promoted by the V.S.T Group, a well known business

house in South India, in technical collaboration and JV with Mitsubishi Heavy Industries (MHI). The founder, Mr. V.S.

Thiruvengadaswamy Mudaliar founded VST & Sons in 1911 which was involved in distributing petroleum products. Over the

years the group entered automobile dealerships business (India Garage) and manufacturing (VST Tillers Tractors)

Business

JV with MHI was initially to manufacture Power Tillers and Diesel Engines. In 1984, there was an additional technical and

financial collaboration with Mitsubishi Agricultural Machinery Company Ltd for manufacture of 18.5 HP, 4 wheel drive Tractor.

Currently, VST is India’s largest manufacturer of power tillers (45% market share). VST also manufacturers rice transplanters

and other attachments/products such as harvesters, reapers, cutters etc.

Management Mr. VK Surendra is the Chairman, Mr. VP Mahendra is the MD and CEO and Mr. VV Pravindra is the Deputy MD. Mr. BCS

Iyengar is the Executive Director and Mr. R Thiyagarajan is the VP Finance and CFO.

Presence The company has three manufacturing units. 1) Bangalore (Whitefield) – Currently Tillers and Tractors are manufactured.

2) Hosur (TN) – new plant where tractor production would be completely moved. 3) Mysore – Precision components division

Corporate Structure The promoters hold 53.85% (including 2.93% by Mitsubishi Heavy Industries ltd) in VST. VST also has a 10% stake in a JV –

MHI-VST Diesel Engines Private Ltd. VST invested Rs. 41.5mn in the JV in 2008

Revenue Model

The company derives 54% of revenues from power tillers, 32% from tractors, 7.5% from spares and the rest from rice

transplanters and other components. While government subsidies are not directly part of revenues in most states, ~1/3 of

power tiller sales are subsidised and hence receipt of payment from dealers hinges on smooth subsidy disbursals

Capacity Current capacity of ~30,000 tractors and tillers and ~33,000 diesel engines. Post the Hosur expansion (November 2013), the

company is expected to have capacity of ~30,000 tractors and ~60,000 tillers.

Key Success Factors

Presence in the lower end of the farm mechanisation products. Both its products are suited for smaller farms - power tillers

(~13HP) and Tractors (18.5HP). Plans to strengthen its position in lower HP tractors with the launch of 22HP tractor from the

new facility. Strong network of 150+ dealers.

Credit Rating CRISIL A+ (Long Term) and A1+ (Short Term).

Corporate Bankers State Bank of India, Canara Bank

Auditors M/s Brahmayya & Company


Rs. 429

Target

NA

Rating

NA

FY13 revenue break-up (Rs. 4.8bn)

Source: Company, Spark Capital

3

Leader in power tillers (FY13 volumes of ~49,000 units)


Leader in power tillers; marginal player in tractors

Power Tillers54%

Tractors32%

Rice Transplanters

1%

Spares8%

Others5%

Steep capacity addition with new plant at Hosur

Product FY12 FY13 FY14E

Power Tillers 24,000 40,000 60,000

Tractors 6,000 10,000 30,000


VST remains a marginal player in Tractors

Tractor Industry VST

FY12 FY13 FY12 FY13

Tractor Volumes 607,663 590,915 7,038 6,233

HP wise Break-up

Upto 20 HP 1.2% 3.1% 100.0% 100.0%

21 - 30 HP 12.5% 6.2% - -

31 - 40 HP 41.3% 40.4% - -

41 - 50 HP 27.8% 36.4% - -

51 hp and above 17.4% 13.9% - -

Up to 20HP segment witnessed a steep yoy growth in FY13 driven by new

products from M&M (15 HP Yuvraj), Tafe and Sonalika. While the segment

grew, VST witnessed a decline on the back of production constraints.

Within the segment, VST has a market share of ~34% in FY13


VST45%

KAMCO23%

Chinese+others32%


Rs. 429

Target

NA

Rating

NA

4

Power tillers industry recorded 12% CAGR last 8 years

Source: Department of Agriculture, Spark Capital

Government push by way of schemes and subsidy is the key driver

Our industry and company interactions suggest

that the decline in power tiller volumes were

primarily driven by delay in subsidy

announcement by key states. While the delayed

monsoon in FY13 also impacted sales, subsidy

is the key driver for power tiller demand.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

State govt responsible for implementation of centre's subsidy

Machine Rate of Subsidy Remarks

Tractor @ 25% of cost limited to Rs. 45,000 Up to 40 HP

Power

Tillers

@ 40% of cost limited to Rs. 45,000 > 8 HP

@ 40% of cost limited to Rs. 25,000 < 8 HP for hilly regions

Other self

propelled

machines

@ 25% of cost limited to Rs, 40,000

Viz. Reaper, paddy

transplanter

Centrally sponsored schemes such as Macro Management of Agriculture and

National Agriculture Development Programme (NADP) provide farmers subsidy to

purchase agri machinery / implements. Each state government is responsible for

implementation and can also provide additional subsidy depending on its finances


Tractors industry recorded 10% CAGR last 8 years


0

100,000

200,000

300,000

400,000

500,000

600,000

700,000



Rs. 429

Target

NA

Rating

NA

5

Human & animal labor down from 63.5% to 13.7% in ~40 years


Farm yield driven by power availability; cost of human and cattle farm power increasing

Status of farm mechanisation in India

Operation Current Mechanization Level

Soil working & Seed Bed preparation 40%

Seeding & Planting 29%

Plant Protection 34%

Irrigation 37%

Harvesting & Threshing For Wheat & Rice – 60-70%

For Other Crops – Less than 5%

Source: Industry, Spark Capital

Govt. targeting ~2Kw/ha of farm power by end of 12th five year plan


Cost of conventional sources of farm power surge

(annual average, %) FY05 – FY08 FY09 – FY13

Food Articles 7.3 11.4

Fertilisers and Pesticides 1.7 7.8

Fodder 1.3 19.5

Cattle Feed 12.2 10.2

High-speed diesel 4.5 8.0

Electricity (agricultural) 2.3 8.7

Tractors 3.6 5.4

Wages (average) 6.2 17.3

Source: Ministry of commerce and ministry of labour, Spark Capital

0.00

0.50

1.00

1.50

2.00

2.50

1951 1961 1971 1981 1991 2001 2010 2013 2017E

Food Grain Yield (Mt/ha) Farm Power (Kw/ha)

8

18

2637 38 42

1723

21 19 20 19

11 1625 26 26 25

0

20

40

60

80

100

1971-72 1981-82 1991-92 2001-02 2005-06 2009-10

Proportional share in total farm power availability

Agriculture Workers Draught Animals TractorsPower Tillers Diesel engines Electric motors


Rs. 429

Target

NA

Rating

NA

Farm power availability and food grain yield (2010 – 2011)

Source: Industry, Spark Capital

6

Majority of the states have low farm power availability resulting in lower yields

1987

1809

1496

1256

1555

1047

1662

2470

1330

1297

10081039

931

1560

1377

1796

2544

12851397

2522

14051530

1780

24772294

2236

4144

3383

0

500

1000

1500

2000

2500

3000

3500

4000

4500

0 0.5 1 1.5 2 2.5 3

Fo

od

Gra

in y

ield

( K

g/ h

a)

Farm power (Kw/ha)

Farm Power Availability and Foodgrain yield (2010-2011)

Low Machanisation & Low Yield: 17StatesNational Average: 1.66 KW/ha

National Average: 1790 Kg/ha

High machanisation & High yield: 5 States

Low/ Moderate Machanisation & High / Average Yield: 7 States (Rice Based)

Goa

Meghalya

KeralaTripura

WB

ManipurUttarakhand

Punjab

Haryana

TN

AP

UP

Average farm power availability for the cultivated areas of the country has increased from 0.48 kW/ha in 1975-76 to 1.73 kW/ha at present and is likely to

rise to 2.0 kW/ha by 2017. Shrinking landholding size with majority of the farmers being small and marginal is also making individual ownership of

agricultural machinery progressively uneconomical.


Rs. 429

Target

NA

Rating

NA

7

Multiple drivers for mechanisation exist; marginal land holding is the key road block

Productivity

•Historically farm productivity has had a positive correlation with increased availability of farm power (mechanisation)

•Mechanisation improves utilisation efficiency of inputs

•Mechanisation improves timeliness leading to higher cropping intensity

Replaces human and animal labour

•Mechanisation is more efficient than conventional farm power sources

•At optimum utilisation mechanisation is cheaper than human and animal labour

Weather risk mitigation

•Mechanisation helps in flexibility in sowing, harvesting etc. as the time taken to do these activity reduces substantially

Savings in

• Seeds: 15-20%

• Fertilizer: 15-20%

• Time: 20-30%

Increase in

• Cropping intensity: 5-20%

• Farm productivity: 10-15%

• Reduction in manual labour : 20-

30%

Estimates of contribution from

mechanisation

~ 83% of farmers have average land holing < 2ha, accounting for 41% of agri

land; avg holding down to 1.23ha in 2006 from 1.33 in 2001 and 1.41 in 1996

Average no. of farm equipment/machinery possessed per 1000 farmer household in land

class (ha)

< 0.01 0.01–

0.40

0.41–

1.00

1.01–

2.00

2.01–

4.00

4.01-

10 > 10

All

Size

Plough 49 292 568 775 889 1030 1189 569

Harrow, Seed drill,

sprayer & duster

64 165 354 481 685 1051 1512 389

Thresher 2 19 43 53 74 106 198 44

Power Tiller 0 1 4 15 33 75 148 13

Tractor 2 2 22 25 75 189 375 29


• Tractor and tiller penetration is significantly low

in < 2ha land holding category

• While the above mentioned factors are positive

for mechanisation, small land holding is the key

road block for mechanisation to pick up

• Small and marginal land holdings lead to

adverse economies of scale

• High cost of ownership leads to unaffordability

by small and marginal farmers (despite

subsidies)

• Poor credit worthiness leads to unavailability of

loans


Rs. 429

Target

NA

Rating

NA

8

Govt. plans to push ‘Custom Hiring’ to improve mechanisation among small farmers

• In order to lay special emphasis on farm mechanization and to bring more inclusiveness, a dedicated Sub-Mission on Agricultural Mechanization (SMAM)

for the XII Plan has been proposed with an estimated outlay of Rs.20bn for the entire plan period

•One of the key components of SMAM is to establish Farm Machinery Banks for Custom Hiring. The idea is to offset the adverse ‘economies of scale’, ‘high

ownership costs’ and ‘low credit worthiness of small farmers’ by providing farm machinery on hire to farmers

•The plan also looks to establishing Hi-Tech productive equipment centres to target low productive agricultural regions

• SMAM would also provide appropriate farm equipment to farmers based on the crop, region and agro climatic conditions

•Procurement subsidy will be provided for establishment of custom hiring centers. Financial support to private entrepreneurs for setting up custom hiring

centers through creation of Credit Guarantee Fund and Venture capital fund

Assistance provided under SMAM

Program Pattern of

assistance

Implementing

Agencies

Beneficiaries

Custom

Hiring –

Farm

Machinery

Banks

50% of cost of

procurement - limit

of Rs. 3mn per

Centre

State

Government

Individual Entrepreneurs/Self

Help Group (SHG)/ User

Groups (UG) of farmers,

Cooperative Societies of

Farmers

Hi-tech

centres

40% of cost of

procurement - limit

of Rs. 10mn per

hub

State

Government

Individual Entrepreneurs /Self

Help Group (SHG)/ User

Groups (UG) of farmers,

Cooperative Societies of

Farmers


GoI – Ministry of

Agriculture

Credit

Guarantee Fund

Implementing

Agency

Entrepreneurs

• To begin with GoI would contribute 100%

of the corpus. Later banks, manufacturers

are expected to join and increase the

corpus

• Upto 80% of initial capital costs will be

financed/refinanced by the CGF holders.

20% will come from entrepreneurs.

Assets created will be hypothecated

• All individuals/cooperatives/NGOs eligible

to avail the facility

• Entrepreneurs will be provided three

years grace period that include EMI and

interest. Opportunity cost for far going

EMI / interest will be adjusted against

CGF


Rs. 429

Target

NA

Rating

NA

Segment FY10 FY11 FY12 FY13 1QFY14

0-20 hp 3,758 4,735 7,033 18,468 5,730

YoY% 61% 26% 49% 163% -4%

% of total 0.9% 0.9% 1.2% 3.1% 3.1%

VST 100% 100% 100% 36.0% 30.1%

M&M - - - 57.1% 57.3%

21-30 hp 66,025 70,194 75,753 36,780 13,832

YoY% 33% 7% 1% -51% 66%

% of total 15.9% 13.7% 12.5% 6.2% 7.4%

M&M 50% 55% 55% 27% 56%

TAFE 30% 29% 30% 59% 38%

31-40 hp 202,127 226,555 250,701 238,955 65,177

YoY% 28% 12% 11% -5% 0%

% of total 45.9% 41.6% 41.3% 40.4% 34.9%

M&M 43% 44% 41% 38% 39%

TAFE 32% 31% 36% 35% 28%

41-50 hp 105,811 154,037 168,695 214,864 85,519

YoY% 25% 46% 10% 27% 70%

% of total 24.0% 28.3% 27.8% 36.4% 45.7%

M&M 27% 26% 28% 44% 42%

TAFE 11% 11% 15% 16% 25%

> 51 hp 62,484 89,619 105,481 81,848 16,700

YoY% 30% 43% 18% -22% -25%

% of total 14.2% 16.4% 17.4% 13.9% 8.9%

International

Tractors 13% 13% 13% 21% 26%

John Deere 34% 32% 29% 27% 25%

Total 440,208 545,108 607,663 590,915 186,958

9

VST remains a small player in tractors; does not plan to enter the > 30hp space


•Until FY12, VST was practically the only player in the 0-20 hp segment,

post entry of M&M and a few others, VST tillers’ share in the segment

declined significantly. However, the segment itself clocked a steep

growth and grew 2.5x in FY13

•The entry of new players in the segment coincided with supply side

issues for VST, which saw tractor volumes decline 11% yoy in FY13

•M&M’s Yuvraj, which is a 15 hp two-wheel drive tractor was the major

growth driver of the segment. In comparison, VST’s 18.5 hp tractor is a 4

wheel drive variant and is used extensively in Maharashtra and Gujarat

regions in wine yards.

•For VST tillers, the sub-30 hp category is the key as the upcoming

products (recently launched a 22 hp tractor) would be in the 22 – 30 hp

segment. VST also plans to launch two-wheel drive variants of the 18.5 h

and 22 hp tractor in the near future

•With the steep increase in capacity for VST, launch of new products and

overall growth in the sub 30 hp segment, we expect VST to see a tractor

volume CAGR of ~17% from FY13 – FY16. From FY06 – FY13, VST

witnessed a tractor volume CAGR of 26%, albeit on a low base

•We note that being in the < 30 hp category, VSTs tractors would

continue to be driven by subsidies provided by state and central

government

•With a strong position in tillers and a pan India network, we expect VSTs

new products to do well as it continues to cater to the small/medium

farmers who plan to upgrade from a tiller. Moreover, smaller tractors

would also cater to farmers who also want to use tractors for non-farm

purposes


Rs. 429

Target

NA

Rating

NA

10

Good Kharif monsoon so far; strong reservoir positions augur well for Rabi

Rabi is expected to be good driven by strong reservoir positions

Source: CWC, Spark Capital

Percentage of full reservoir level (FRL) 100% 91%-99% 81%-90% 71%-80% 61%-70% 51%-60% 41%-50% <40%

North (HP,Punjab & Rajasthan) 2 3 1 - - - - -

East (Jharkhand, Odisha, Tripura & WB) 1 - 5 2 1 2 3 1

West (Guj.& Mah.) 4 4 1 4 2 1 2 4

Central (MP, UP, Uttarakhand & Chh.) - 7 3 1 - - - 1

South (Karnataka, TN, AP & Kerala) 8 8 4 4 3 - 1 2

Status of 85 reservoirs (Country wide) 15 22 14 11 6 3 6 8

Cumulative weekly seasonal rainfall departure (%) from LPA

Source: IMD, Spark Capital

Trend in food grain acreage and average rainfall (June to Sep)


105

110

115

120

125

130

650

700

750

800

850

900

950

1,000

1,050

1990-9

1

1991-9

2

1992-9

3

1993-9

4

1994-9

5

1995-9

6

1996-9

7

1997-9

8

1998-9

9

1999-0

0

2000-0

1

2001-0

2

2002-0

3

2003-0

4

2004-0

5

2005-0

6

2006-0

7

2007-0

8

2008-0

9

2009-1

0

2010-1

1

2011-1

2

2012-1

3

Rain fall (mm) LHS Acreage (mn Ha)

2823

54

37

27

1916 16 17 15 13 14

118 6 4

0

10

20

30

40

50

60

5th

Jun

12th

Jun

19th

Jun

26th

Jun

3rd

Jul

10th

Jul

17th

Jul

24th

Jul

31st J

ul

7th

Aug

14th

Aug

21st A

ug

28th

Aug

4th

Sep

11th

Sep

18th

Sep


Rs. 429

Target

NA

Rating

NA

Revenue and EBITDA margin


11

FY14 to see VST get back lost volumes in FY13; strong historical CAGR

0

5,000

10,000

15,000

20,000

25,000

30,000


VST - Power Tillers (nos)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000


Tractors (nos)

FY13 was first year of YoY decline in tiller volumes for VST


Similar trend seen in tractor volumes for VST


•VST revenues have grown at a 20%+ in the last seven years. EBITDA

margins have averaged ~14.5% in the same period

•FY13 revenues declined on the back of decline in tillers and tractor

volumes. Volumes declined on the back of a weak monsoon and delay in

announcement of subsidy schemes in a few states

•Based on our estimates subsidy (collected either directly from the state

government or through dealers) accounts ~25% of revenues

•VST also markets rice transplanters which are primarily traded goods.

Growth in rice transplanters is expected to see a steep increase on the

back of awareness and significant reduction in labour requirements.

•Typically the government approves a list of products that are eligible for

subsidy. This approval is given after the product undergoes testing; also

the price of the product is approved by the govt.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14e FY15e

Revenue EBITDA Margin %


Rs. 429

Target

NA

Rating

NA

12

Manufacturer typically bears the impact of delay in subsidy disbursals

Farmer

Department of agriculture (State)

After verification, advices

distributor

Distributor

Supply at subsidised price to

farmer and submits papers to

department of agriculture for

subsidy

Application filed through

village/district

administration

Distributor pays manufacturer

Typically the farmer opts

for a particular brand

based on comfort with

dealer/distributor

Farmer chooses from a

list of approved

manufacturers

Distributor receives the

farmer’s share at the

time of supplying the

equipment

Delay in subsidy

disbursal leads to delay

in distributor paying the

subsidy component to

the manufacturer

Average 4-5% increase in ASPs over the last 10 years


-

50

100

150

200

250

300

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Rs. /

un

itT

ho

usands

ASP for Tiller ASP for tractor

• Sale of power tillers and tractors (below 40 hp) are primarily dependent

on subsidy. Farmer chooses the brand based on comfort with dealer or

in some cases by way of credit offered by the dealer on particular brands

• In a typical sale, the dealer pays the non-subsidy portion to the

manufacturer within the decided credit period. However, the subsidy

portion that the dealer received from the government is the primarily

cause for high debtor receivables for VST Tillers

• Our channel checks and management interaction suggests that in a few

states such as Orissa, growth in tiller sales is steep primarily driven by

the timely subsidy disbursals; moreover the entire process of application

and approval is done online

• Historical trend suggests a 4-5% annual average increase in ASP.

Our channel checks suggests a 6 – 7% price increase approved by

the government in 1QFY14.


Rs. 429

Target

NA

Rating

NA

-60%

-40%

-20%

0%

20%

40%

60%

80%

0

1000

2000

3000

4000

5000

6000

7000

8000

1Q

FY

13

2Q

FY

13

3Q

FY

13

4Q

FY

13

1Q

FY

14

2Q

FY

14E

3Q

FY

14E

4Q

FY

14E

Power Tillers (quarterly volume) YoY %

13

Volume growth expectations driven by low base, subsidy approvals and new launches

2QFY13 is a significantly lower base


• Quarterly trend in tiller volumes suggests a steep 45% decline in

2QFY13 was primarily the cause for a weak FY13. The quarter

witnessed steep decline driven by the weak monsoon and delay in

announcement of subsidies by few states

• Our interaction with the management and channel checks suggests that

this year a good monsoon and the timely announcement of subsidies by

most states would be a key driver for volumes in FY14 especially in

2QFY14

• We expect tiller volume growth of 25% in FY14 (good monsoon and low

base) and 15% in FY15.

• Tractor volumes on the other hand is expected to be primarily driven by

new product launches and capacity addition (new plant)

Expect tractor volumes to grow 17.5% CAGR from FY13 - 15


• With the new plant being operational in November-2013, significant

capacity expansion and new product launch is expected to drive tractor

volume growth in 4QFY14.

• Currently offering 18.5 hp tractor, the company is expected to launch

new products leading to the growth in tractor and other non-tiller

segment

• 22 hp tractor in 2QFY14

• Two wheel drive variants of 18.5hp and 22hp tractors

• 22hp and 18.5hp high speed tractors

• 22-30hp tractors with power steering and torque generators

• Power weeders and Cono weeders

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

0

500

1000

1500

2000

2500

1Q

FY

13

2Q

FY

13

3Q

FY

13

4Q

FY

13

1Q

FY

14

2Q

FY

14E

3Q

FY

14E

4Q

FY

14E

Tractor Volumes (quarterly volumes) YoY %


Rs. 429

Target

NA

Rating

NA

14

VST has successfully managed its working capital despite dependence on subsidy

FY13 was the first year to see increase in receivable days in last 10Y


•Over the last 10 years receivable days have declined steadily, except in

FY13 when it went up

•Despite the increase in receivables, impact on working capital is lower

as VST’s total payables witnessed an increase driven by increase in

‘dealer deposits’, ‘advance received from customers and dealers’ and

‘incentives and marketing expenses payable’

•Within the receivables, we notice that receivables for a period exceeding

six months as a % of total receivables have gone up to 21% in FY13 vs.

and average 5% in the last eight years. Despite this, overall receivables

have gone down from Rs. 1.2bn in FY12 to Rs. 0.97bn in FY13. We

believe that the receivables exceeding six months could be subsidy

receivables. The decline in other debtors (less than six months) could be

driven by decline in sales in FY13 and quicker recoveries from dealers

Receivables outstanding for > 6 months


Drivers for increasing payables (as a % of other current liabilities)


0%

5%

10%

15%

20%

25%


Receivables > 6 months as a % of total receivables

0%

10%

20%

30%

40%

50%

60%


Dealer Deposits Advance from dealers Incentives, mktg expenses and others payables

0

20

40

60

80

100

120

140

160

180

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

Days

Inventory Debtors Trade creditors Other Current liabilities


Rs. 429

Target

NA

Rating

NA

15

Estimates and valuations

Volume and realisation expectations


Consistent dividend payout


Forward PE Band

Source: Bloomberg, Spark Capital

Volumes (units) FY11 FY12 FY13 FY14e FY15e

Tiller 23,449 26,154 21,231 26,539 30,520

yoy% 23% 12% -19% 25% 15%

Tractor 4,735 7,038 6,233 7,168 8,602

yoy% 26% 49% -11% 15% 20%

Average Realisation (Rs.)

Tiller (‘000) 114 115 123 126 130

yoy% 2% 1% 7% 3% 3%

Tractor (‘000) 221 234 248 260 265

yoy% 3% 6% 6% 5% 2%

0%

5%

10%

15%

20%

25%

30%

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

7.0x

5.5x

4.0x

10.0x

8.5x

0

100

200

300

400

500

600

700

Sep

-08

Mar-

09

Sep

-09

Mar-

10

Sep

-10

Mar-

11

Sep

-11

Mar-

12

Sep

-12

Mar-

13

Sep

-13

Forward PE - frequency table (last four years)

P/E Multiple

range

No. of days

traded

% of of no. of

days

Cumulative

traded no. of

days

%

of Cumulative

no. of days

4 - 5x 15 1% 15 1%

5 - 6x 285 21% 300 22%

6 - 7x 210 15% 510 37%

7 - 8x 383 28% 893 64%

8 - 9x 312 22% 1205 87%

9 - 10x 164 12% 1369 99%

10 - 11x 19 1% 1388 100%

Total 1388 1388



Rs. 429

Target

NA

Rating

NA

16

Abridged financials

Abridged Financial Statements - Standalone Key metrics

Rs. mn FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E

Profit & Loss Growth ratios

Revenues 5,306 4,817 5,957 7,055 Revenues 24% -9% 24% 18%

Manufacturing & Other Expenses 4,578 4,095 5,094 6,069 EBITDA 4% -1% 20% 14%

EBITDA 728 722 863 986 PAT 8% -3% 19% 14%

Depreciation 32 34 47 59 Margins

EBIT 696 688 816 927 EBITDA 13.7% 15.0% 14.5% 14.0%

Net Interest Exp / (inc) 9 13 12 12 EBIT 13.1% 14.3% 13.7% 13.1%

Profit Before Tax 734 696 822 934 PAT 9.4% 10.1% 9.7% 9.3%

Tax 234 210 247 280 Leverage & WC ratios

Adj. Net Profit 499 486 576 654 Debt to equity (x) 0.1 - - -

Balance Sheet (Rs. mn) Current ratio (x) 2.2 2.3 2.0 2.4

Shareholders Equity 2,049 2,444 2,914 3,450 Debtor days (Sales) 64 84 70 70

Loan funds 160 - - - Inventory days (COGS) 58 82 80 78

Deferred Tax Liability (Net) 32 29 29 29 Creditor Days (COGS) 64 73 70 67

Sources of Funds 2,241 2,473 2,943 3,479 Performance & turnover ratios

Net block 570 774 1,127 1,368 RoCE 25.8% 21.0% 21.6% 20.6%

Capital WIP 62 142 142 40 RoAE 27.1% 21.6% 21.5% 20.5%

Current assets, loans & advances 2,340 2,402 2,933 3,204 Total asset turnover (x) 2.3 1.8 1.9 1.9

Current liabilities & provisions 975 885 1,299 1,173 Fixed asset turnover (x) 6.1 4.7 4.5 4.2

Net Current Assets 1,365 1,516 1,633 2,030 Valuation metrics

Application of funds 2,241 2,473 2,943 3,479 Current price (Rs.)

Cash Flows (Rs. mn) Shares outstanding (mn) 8.6 8.6 8.6 8.6

Cash flows from operations (96) 499 499 376 Market capitalisation (Rs. mn) 3,710 3,710 3,710 3,710

Capex (109) (318) (400) (198) Enterprise value (Rs. mn) 3,663 3,381 3,372 3,300

Free Cash Flow (205) 181 99 177 EV/EBIDTA (x) 5.0 4.7 3.9 3.3

Cash flows from investments 28 (109) (400) (198) Adj. Per-share earnings (Rs.) 57.8 56.2 66.6 75.7

Cash flows from financing 61 (263) (91) (105) Price-earnings multiple (x) 7.4 7.6 6.4 5.7

Closing cash and cash equivalents 199 326 338 410 Dividend yield (%) 2.1% 2.1% 2.5% 2.8%

429


Rs. 429

Target

NA

Rating

NA

17

Appendix: Power tillers

MODEL VST SHAKTI 130DI

Engine Type 4 stroke Single cylinder diesel engine

Displacement 673.4 cc

Max. Torque 4.2kg-m/ 1900rpm

Max.HP 13.0 HP@2400rpm.

Dry Weight 125 Kgs

Fuel High Speed Diesel

Fuel Tank Capacity 11 ltrs.

Forward: 6 Speeds

Reverse 2 Speeds

Rotary: 2 Speeds ( Optional 4 Speeds)

Weight 280 Kgs.

Tilling Width 600 mm maximum

No. of tynes 18

Tilling Depth 150mm maximum

Plough Depth 220mm maximum

Length * Width * Height 2320 mm x 810 mm x 1300 mm

MODEL VWH-120

Engine Type 4 stroke Single cylinder diesel engine

Displacement 631cc

Max. Torque 3.0kgm/ 1900rpm

Max. HP 9.0hp/ 2200rpm

Dry Weight 119Kgs

Fuel High Speed Diesel

Fuel Tank Capacity 11 ltrs.

Forward: 6 Speeds

Reverse 2 Speeds

Rotary: 2 Speeds ( Optional 4 Speeds)

Weight 280 Kgs

Tilling Width 540 mm maximum

No. of tines 16

Tilling Depth 150mm maximum

Plough Depth 220mm maximum

Length * Width * Height 2300 mm x 900 mm x 1210 mm

Source: Company, other products such as tractors, paddy transplanters details available at http://www.vsttillers.com/product_list

http://www.vsttillers.com/product_list


Rs. 429

Target

NA

Rating

NA

18

Appendix: Operational capability of a power tiller

Operations Attachments Average output/day (8 hr working)

Land Levelling Leveller Depends on earth work

Seed Bed Preparation Rotavator mould board plough, Harrow, Plank Leveller 1 - 3 acres

Puddling Rotavator with cage wheel 3 acres

Ridging Ridger 3.5-4 acres

Sowing Seed drill, Fertilizer drill 3 acres

Intercultivation Tiller weeder, Cultivator 3 acres

Plant Protection Sprayer / Duster 3 acres

Pumping Water Centrifugal pump 600LPM at 15' head

Reaping Reaper 2.5 acres

Mowing Mower 2 acres

Harvesting of pulse crop Harvester 2 acres

Sugarcane stubble removal Shorter Rotavator 2 acres

Tubercrop harvesting Potato digger, ground nut digger 2 acres

Threshing Thresher

Wheat-16 Q

Paddy - 30Q

Bajra - 45 Q

Winnowing Winnower 100Q

Power Generation Alternator 7.5 KVA

Haulage 1.5mt trailer 15 KMPH (max)

Others Flour mill, huller, flaking machine, chaff cutter As per engine HP



Rs. 429

Target

NA

Rating

NA

Spark Disclaimer

Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities. Spark Capital is registered with

SEBI as a Stock Broker and Category 1 Merchant Banker.

This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This document is

provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should be construed as investment or

financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document.

Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this

document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This document is being supplied to you solely

for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not

directed or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,

publication, availability or use would be contrary to law, regulation or which would subject Spark Capital and/or its affiliates to any registration or licensing requirement within such jurisdiction.

The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this document may come are required to

inform themselves of and to observe such applicable restrictions. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction

where such an offer or solicitation would be illegal.

Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital ,

its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the

securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company

referred to in this report.

This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark Capital. While we

would endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information. Also, there may be regulatory,

compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective directors, employees, agents or representatives

shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents or any errors or discrepancies herein or for any decisions or

actions taken in reliance on the report or the inability to use or access our service in this report or for any loss or damages whether direct or indirect, incidental, special or consequential

including without limitation loss of revenue or profits that may arise from or in connection with the use of or reliance on this report.

Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, Spark Capital has

incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:

Absolute Rating Interpretation

Buy Stock expected to provide positive returns of >15% over a 1-year horizon

Add Stock expected to provide positive returns of >5% – <15% over a 1-year horizon

Reduce Stock expected to provide returns of <5% – -10% over a 1-year horizon

Sell Stock expected to fall >10% over a 1-year horizon

Recommendation History

Date CMP Target price Rating

- - - -

- - - -

- - - -

- - - -

- - - -


Rs. 429

Target

NA

Rating

NA

Analyst Certification of Independence

The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research

analyst’s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report.

Additional Disclaimer for US Institutional Investors

This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under the Securities

Exchange Act of 1934, as amended) only by Decker & Co, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange Act of 1934, as amended). Decker &

Co accepts responsibility on the research reports and US Institutional Investors wishing to effect transaction in the securities discussed in the research material may do so through Decker & Co.

All responsibility for the distribution of this report by Decker & Co, LLC in the US shall be borne by Decker & Co, LLC. All resulting transactions by a US person or entity should be effected

through a registered broker-dealer in the US. This report is not directed at you if Spark Capital Advisors (India) Private Limited or Decker & Co, LLC is prohibited or restricted by any legislation

or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Decker & Co, LLC and Spark Capital Advisors (India) Private Limited are

permitted to provide research material concerning investment to you under relevant legislation and regulations;

Disclosure of interest statement Yes/No

Analyst ownership of the stock No

Group/directors ownership of the stock No

Broking relationship with the company covered No

Investment banking relationship with the company covered No

Documents

VST Tillers Tractors Ltd. (VST) CMP - Spark Capitalmailers.sparkcapital.in/uploads/Narayanan/VST Tillers_Company Update... · VST Tillers Tractors Ltd. (VST) CMP Rs. 429 Target NA