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Research
Buy VST Tillers Tractors - Sushil Finance
Posted On : 2013-07-01 22:56:21( TIMEZONE : IST )
VST Tillers Tractors Ltd (VST) is the largest player in Power Tillers segment in India and a leading manufacturer of farm equipment such as sub 20 HP Tractors, Paddy Transplanters, Diesel Engines, etc. Recently, we talked with the management to get update of current business outlook. The key takeaways from the call are given hereunder:
- During FY07-12, VST delivered 20% CAGR in volumes of Power Tillers' sales & 35% CAGR in Tractors' sales. On the contrary, due to subdued demand during FY13, it witnessed sharp reduction in sales volume of tractors (14.3%) & Power Tillers (15.4%). Hence, its Revenues declined 9.2% to Rs. 4,816.6 mn in FY13 as it could sell 6,000 units of tractors and 22,000 units of Power Tillers. However, the sales volume has improved in Q1FY14 as both Tractors & Power Tillers sales volume has increased on YoY and the management expects to achieve volume growth in FY14.
- The new Tractor manufacturing plant in Hosur, Tamil Nadu with an installed capacity of 36000 units' p.a. is expected to go on stream during the Sept' 2013. The financial outlay for this expansion is Rs. 660 mn.
- The average realization of Tractors remained stable at Rs. 2.4 Lakh per unit, while the average Realization of Power Tiller was Rs. 1.17 Lakh per unit during FY13. The company expects price to remain stable in FY14 although it faces stiff competition from Chinese products which are much cheaper.
- During the year, its EBIDTA decreased 0.9% to Rs. 721.6 mn, while its EBIDTA margins improved 130 bps to 15%. The growth in margins can be attributed to sharp increase in inventory level resulting into lower cost as % of sales. Going forward, the company expects RM cost to remain stable at its EBITDA margins to stabilize at ~14-15% level. Its PBT including other income declined 5.1% to Rs. 696.3 mn, while its APAT was down 2.7% YoY to Rs. 485.8 mn.
OUTLOOK & VALUATION
Farm mechanization in India is essential to improve productivity and overcome the farm labor shortage issue. The government's subsidy encourages farmers to buy farm equipment and drives overall demand for Power Tillers and low HP Tractors amongst others. VST, being an established player in farm equipment segment, is very well placed to cater opportunities in this segment going forward. VST is a debt free company with net cash in balance sheet. The company also has a track record of paying regular dividend and has higher return ratios.
The sales volume has improved in Q1FY14 and the management expects to close FY14 with volume growth in both Tractors & Tillers. It also expects margins to stabilize at 14-15% level. We expect VST's Net Revenues to grow by 13.5% & 12.5% to Rs. 5,468 mn & Rs. 6,152 mn in FY14E & FY15E, respectively, while its Net profits to grow by 11% & 16.2% to Rs.539.1 mn & Rs.626.7 mn in FY14E & FY15E, respectively. At the CMP of Rs.360, VST is trading at an attractive valuation 5.8x & 5.0x its FY14E & FY15E EPS of Rs. 62.4 & Rs. 72.5 respectively. We assign 'BUY' Rating on the stock with a target price of Rs.435 (6x its FY15E earnings).
