VST Tillers & Tractors - Expect a healthy performance; Buy - Anand Rathi

3QFY14 should continue the 1H trend. While tractor industry sales were robust in 1H, power tillers also displayed a good trajectory in 1H. Consequent on 24.1% yoy estimated volume growth, we expect 26.8% yoy revenue growth to Rs. 1.6bn. Our EBITDA margin expectation is 17.9% (up 200bps yoy, up 10bps qoq). We expect EBITDA to grow 42.6% yoy, to Rs. 279m. We expect Rs. 178m in profit, a 37.4% yoy growth (stable qoq).

Per-unit parameters to improve yoy. We expect realisations to be 2.2% higher yoy, while the contribution per unit is expected to be 9.9% higher yoy. While the base is no longer low as it was in 2Q, we expect EBITDA per vehicle and profit per vehicle to be 14.9% and 10.7% higher yoy. Long-term outlook good. More than 50% of cultivated land is less than four hectares (of this ~42% is less than two hectares). Nearly 83% of operational landholders are marginal or small farmers, who own less than two hectares. This trend augurs well for the company.

Our take. Lower offtake of tractors and power tillers hit 2QFY13 performance. While 2HFY13 was better, 1HFY14 has marked a return to robust volumes. The management targets over 20% growth in FY14 (we estimate 25% and 22.5% growth for power tillers and tractors respectively). Demand for tractors is expected to be good, despite the company facing problems on sourcing a few components. In 3Q, power-tiller sale could be hit by adverse weather conditions in a key market. However, we are optimistic for the long term and maintain a Buy. The stock currently trades at 7.3x FY15e.

Risks. Intense competition, change in government policies, adverse weather conditions.

Source : Equity Bulls

Keywords