VST Tillers Tractors Ltd - "Enteriing a new growth trajectory" - Nirmal Bang

- Supply chain management issues resolved; new facility to catapult company into a different league: With the commencement of the new facility at Hosur very soon, the company is aspiring to breach a turnover of Rs.1000-crore mark by FY'16E, an addition of over Rs.500 crore to the topline during FY'12-16E.

- Net Sales expected to register a CAGR of 33 per cent over FY'13-15E: Net Sales is expected to register a CAGR of 33 per cent, mainly led by tractor sales which are expected to almost double from 6233 units in FY'13 to over 12000 units in FY'15E.

- Change in internal product mix to lead to improvement in margins; higher PAT growth: The contribution of tractors (having higher margin compared to tillers) to the net sales is expected to improve significantly from 32 per cent in FY'13 to 42 per cent in FY'15E. This should lead to a CAGR in PAT to 36.9 per cent during FY'13-15E.

- Deep asset value: Not only the company has a debt-free balance sheet but inherent asset value in the form of 23 acres of land in Whitefield area (present market value is minimum Rs.350 crore) and 18 acres of land in Hosur.

Valuation & Recommendation

The company posted net sales of Rs.481.6 crore during FY'13, a decline of 9.2 per cent y-o-y. This was attributable to weak monsoons leading to delay in subsidy at state level. In fact, FY'13 was the only time in the last many years that the company showed a decline in performance.

However, the company bounced back strongly in FY'14 with H1 net sales breaching the Rs.300-crore for the first time. Adjusted PAT for the period stood at Rs.36.4 crore, an increase of 77.1 per cent y-o-y. We expect the company to post a PAT of Rs.73.7 crore on net sales of Rs.669.8 crore for the year. With the contribution from the new facility, we expect the company to post a PAT of Rs.91.9 crore on net sales of Rs.855 crore for FY'15E. This translates into an EPS of Rs.106.4.

An asset-rich company with a clean balance sheet, enjoying dominance in its product range with earnings set to grow exponentially (at a CAGR of 36.9 per cent over FY'13-15E), we expect the P/E multiple to follow the earnings upgrade. We value the company at 9x FY'15E earnings to arrive at a price target of Rs.958 per share (35 per cent upside) over the next 12-15 months.

Source : Equity Bulls

Keywords