VST Tillers Tractors Ltd - Q3FY14 Update, CMP Rs.792, Rating changed to Accumulate, increased Target of Rs.938 - Sushil Finance

VST TILLERS TRACTORS LTD. - Q3FY14 RESULT UPDATE - CMP Rs.792, Rating changed to Accumulate, increased Target of Rs.938

VST Tillers Tractors Ltd (VST) reported excellent performance for Q3FY14 with Revenue (Rs. 1,599 mn) & Net Profits (Rs. 216 mn) growth of 30.6% & 67.1% respectively on YoY basis. The company also witnessed strong margin improvement on account of higher contribution (70% of tractors volume) from its 22HP tractors. The key highlights of the performance are summarized hereunder:

- During Q3FY14, VST delivered Revenue growth of 30.6% YoY driven by strong volume growth & ~5% increase in price realization. During the quarter, it delivered 17% YoY growth in sales volume (6,427) of Power Tillers and 53% YoY growth in sales volume (2,172) of Tractors. The volume growth in Power Tillers is encouraging as it came in the face of muted demand in Odisha due to effect of cyclone. The company now expects to sell ~27,500+ power Tillers in FY14 as against 21,231 in FY13. Tractors' sales were driven by decent demand from recently introduced 22HP Tractor (contributing ~70% to its incremental volumes) along with existing 18.5HP model, VST expects to sell 7,700+ Tractors in FY14 as against 6,233 in FY13.

- Its EBIDTA grew 56.7% YoY to Rs. 302 mn, while its EBIDTA margins improved further and stood at 18.9%. The growth in margins can be attributed to strong volume growth, higher contribution from 22HP tractors which is sold at higher price and stable RM cost. Going forward, the company expects slight increase in its RM cost and its EBITDA margins to stabilize at ~16.5% level.

- Its PBT including other income grew 66.7% YoY to Rs. 312.4 mn, while its APAT grew 67.1% YoY to Rs. 216 mn.

- At present the central subsidy on power Tiller is Rs 45,000 which is administered through the States and many states top it up with additional state subsidy in the range of Rs. 10,000 to Rs 25,000. The power Tillers are supplied by VST at the net subsidized price and the Subsidy is paid by states to the Company or its authorized dealers. The collection period for the subsidy also varies from State to state which is currently ranging from 60 to 180 days.

- While higher subsidy improves the sales of power Tiller on the flipside the average collection period also goes up. However, with increased focus on tractor sales the company is gradually eliminating the working capital risk it has faced due to delay in collection of subsidy from center & state Govt. The increased contribution of 22HP tractors with better realization will also improve its margins which have been volatile in the past as it could not pass on the increase RM cost immediately for the Tillers.

- The price of 22HP Tractor is Rs. 30,000 higher in comparison with 18.5 HP and incrementally contributes higher volume to its tractor sales. The blended realization has improved ~5% in Q3FY14 and ~3% in 9MFY14. We expect price of its products to remain stable despite stiff competition from Chinese products which are cheaper.

OUTLOOK & VALUATION

With strong 9MFY14 performance and business outlook, we have upgraded our FY14E & FY15E Revenue & APAT estimates. We expect VST's Net Revenues to grow by 29.9% & 20.5% to Rs. 6,255 mn & Rs. 7,538 mn in FY14E & FY15E, respectively, while its Net profits to grow by 55.5% & 13% to Rs.755.5 mn & Rs.853.6 mn in FY14E & FY15E, respectively.

At the CMP of Rs.792, VST is trading at an attractive valuation 9.1x & 8.0x its FY14E & FY15E EPS of Rs.87.4 & Rs.98.8 respectively. Given its strong growth, healthy balance sheet & Return ratios (RoCE 42%, RoE 27%), we maintain our positive view on the stock and change our rating to 'Accumulate' with an increased target price of Rs.938.

Source : Equity Bulls

Keywords