Reduce Tractors India Ltd - Kotak

Tractors India Ltd (TIL) has been observing sluggish demand across power system and construction divisions. Muted public spending in various infrastructure projects viz. roads, power, mining has been affecting company's business.

- Construction and mining division has been severely affected and have resulted in substantial increase in finished goods inventory. Working capital has been soaring through FY12 on account of increasing receivables.

- Managements expects revenue pick up and operating margins to remain under pressure over the next two quarters due to 1) volatility in war material prices 2) inability of the company take price hike on Caterpillar products.

- Demand in Material handling division (MHS) has been steady through FY12. Management expects meaningful contribution from the segment going ahead.

- We expect the company and peer group business to remain under pressure over next two quarters. Rising interest rate and input price trend would remain the key variable to monitor.

- We reduce our earnings estimate for FY13 to factor in 1) delay in government infrastructure projects 2) increasing input prices 3) rising interest rate scenario.

- We maintain our 'REDUCE' rating on the company's stock with a one year DCF price target of Rs 225 (Rs 310 earlier).

Source : Equity Bulls

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