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VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
1
Stock performance (%)
1m 3m 12m
VSTT 7% 14% -4%
Sensex 7% 6% 6%
VST is the leader in Indian power tiller industry with a strong presence in the ~20hp tractor segment. FY13
witnessed weak tiller and tractor volumes due to below normal monsoon and delay in implementation of subsidy
schemes by state governments. Monsoon this year has been above normal and our channel checks suggest that
most state govts. have announced subsidy on time, driving tiller and lower hp tractor volumes upwards. Over a
medium term we expect VST’s growth to be driven by central government push to improve farm power
availability (to increase farm yields) and introduction of new products in the 18.5 & 22hp tractor space.
We expect a revenue and PAT CAGR of 21% and 16% from FY13-15 and expect VST to maintain its leadership in
the power tillers space. In tractors, while VST would remain a small player, it would continue to maintain a strong
presence in the 18.5 & 22hp segment by way of new launches and expanded capacity. The stock trades as 5.7x
FY15 EPS, which we believe leaves room for strong upside.
Increase in farm power requirement: Government push by way of direct subsidies on tillers/small tractors and by
setting up custom hiring centers is expected to drive demand for tillers/small tractors. VST, being the leader is expected
to be one of the key beneficiaries of improving demand. Moreover, our channel checks suggests that the depreciating INR
has made Chinese tillers more expensive (price is the USP). Also, at the beginning of FY14, govt approved a ~7% price
hike for VST. With 18% tiller volume CAGR for 10 year prior to FY13, we believe FY13 was an aberration and expect
volumes to pick-up in FY14 & FY15
New products and capacity: The new plant at Hosur is expected to be operational in November-2013, taking capacity of
tillers to ~60,000 and tractors to ~30,000 units (from 10,000). In the past, VST has also had issues with vendor capacity
and supply chain. While the issues have largely been resolved, new products roll out (two wheel drive variants, 22 hp
tractors, high speed variants) coupled with an existing large network of 150+ dealers is expected drive revenue growth
Maintaining balance sheet quality and capital efficiency: Being largely dependent on subsidies, receivables could
remain elevated. However, over the last ten years VST has successfully kept a check on working capital (except for
FY12) by way of higher dealer deposits, Incentives & marketing expenses payable to dealers and advances from dealers.
VST is debt free and has maintained ~25% RoE over the last 10 years.
Payout and valuations: Dividend payout has averaged 19% over the last 12 years, however last five year average is
16% (reduced for capex of new plant). Stock has traded at average 7.3x fwd PE in the last four years. Currently at 5.7x
FY15 EPS. We believe valuations are attractive given the earnings growth and balance sheet quality
Financial summary
Year Revenues (Rs. mn) EBITDA (Rs. mn) Adj. PAT (Rs. mn) Adj. EPS (Rs.) P/E(x) EV/EBITDA(x)
FY13 4,817 722 486 56.2 7.6 4.7
FY14E 5,957 863 576 66.6 6.4 3.9
FY15E 7,055 986 654 75.7 5.7 3.3
Quality play on farm mechanisation and improving penetration in agri-machinery
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Date Sep 23, 2013
Market Data
SENSEX 19901
Nifty 5890
Bloomberg VSTT IN
Shares o/s 8.6mn
Market Cap Rs. 4bn
52-wk High-Low Rs. 526-330
3m Avg. Daily Vol Rs. 4mn
Index member BSESMCAP
Latest shareholding (%)
Promoters 53.9
Institutions 7.6
Public 38.6
Mukesh Saraf
+91 44 4344 0041
Narayanan Ravindranathan
+91 44 4344 0020
Company Update
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
2
Corporate Factsheet
Promoter Background
V.S.T Tillers Tractors Ltd (VST) was incorporated in 1967 in Bangalore. Promoted by the V.S.T Group, a well known business
house in South India, in technical collaboration and JV with Mitsubishi Heavy Industries (MHI). The founder, Mr. V.S.
Thiruvengadaswamy Mudaliar founded VST & Sons in 1911 which was involved in distributing petroleum products. Over the
years the group entered automobile dealerships business (India Garage) and manufacturing (VST Tillers Tractors)
Business
JV with MHI was initially to manufacture Power Tillers and Diesel Engines. In 1984, there was an additional technical and
financial collaboration with Mitsubishi Agricultural Machinery Company Ltd for manufacture of 18.5 HP, 4 wheel drive Tractor.
Currently, VST is India’s largest manufacturer of power tillers (45% market share). VST also manufacturers rice transplanters
and other attachments/products such as harvesters, reapers, cutters etc.
Management Mr. VK Surendra is the Chairman, Mr. VP Mahendra is the MD and CEO and Mr. VV Pravindra is the Deputy MD. Mr. BCS
Iyengar is the Executive Director and Mr. R Thiyagarajan is the VP Finance and CFO.
Presence The company has three manufacturing units. 1) Bangalore (Whitefield) – Currently Tillers and Tractors are manufactured.
2) Hosur (TN) – new plant where tractor production would be completely moved. 3) Mysore – Precision components division
Corporate Structure The promoters hold 53.85% (including 2.93% by Mitsubishi Heavy Industries ltd) in VST. VST also has a 10% stake in a JV –
MHI-VST Diesel Engines Private Ltd. VST invested Rs. 41.5mn in the JV in 2008
Revenue Model
The company derives 54% of revenues from power tillers, 32% from tractors, 7.5% from spares and the rest from rice
transplanters and other components. While government subsidies are not directly part of revenues in most states, ~1/3 of
power tiller sales are subsidised and hence receipt of payment from dealers hinges on smooth subsidy disbursals
Capacity Current capacity of ~30,000 tractors and tillers and ~33,000 diesel engines. Post the Hosur expansion (November 2013), the
company is expected to have capacity of ~30,000 tractors and ~60,000 tillers.
Key Success Factors
Presence in the lower end of the farm mechanisation products. Both its products are suited for smaller farms - power tillers
(~13HP) and Tractors (18.5HP). Plans to strengthen its position in lower HP tractors with the launch of 22HP tractor from the
new facility. Strong network of 150+ dealers.
Credit Rating CRISIL A+ (Long Term) and A1+ (Short Term).
Corporate Bankers State Bank of India, Canara Bank
Auditors M/s Brahmayya & Company
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
FY13 revenue break-up (Rs. 4.8bn)
Source: Company, Spark Capital
3
Leader in power tillers (FY13 volumes of ~49,000 units)
Source: Company, Spark Capital
Leader in power tillers; marginal player in tractors
Power Tillers54%
Tractors32%
Rice Transplanters
1%
Spares8%
Others5%
Steep capacity addition with new plant at Hosur
Product FY12 FY13 FY14E
Power Tillers 24,000 40,000 60,000
Tractors 6,000 10,000 30,000
Source: Company, Spark Capital
VST remains a marginal player in Tractors
Tractor Industry VST
FY12 FY13 FY12 FY13
Tractor Volumes 607,663 590,915 7,038 6,233
HP wise Break-up
Upto 20 HP 1.2% 3.1% 100.0% 100.0%
21 - 30 HP 12.5% 6.2% - -
31 - 40 HP 41.3% 40.4% - -
41 - 50 HP 27.8% 36.4% - -
51 hp and above 17.4% 13.9% - -
Up to 20HP segment witnessed a steep yoy growth in FY13 driven by new
products from M&M (15 HP Yuvraj), Tafe and Sonalika. While the segment
grew, VST witnessed a decline on the back of production constraints.
Within the segment, VST has a market share of ~34% in FY13
Source: Company, Spark Capital
VST45%
KAMCO23%
Chinese+others32%
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
4
Power tillers industry recorded 12% CAGR last 8 years
Source: Department of Agriculture, Spark Capital
Government push by way of schemes and subsidy is the key driver
Our industry and company interactions suggest
that the decline in power tiller volumes were
primarily driven by delay in subsidy
announcement by key states. While the delayed
monsoon in FY13 also impacted sales, subsidy
is the key driver for power tiller demand.
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
State govt responsible for implementation of centre's subsidy
Machine Rate of Subsidy Remarks
Tractor @ 25% of cost limited to Rs. 45,000 Up to 40 HP
Power
Tillers
@ 40% of cost limited to Rs. 45,000 > 8 HP
@ 40% of cost limited to Rs. 25,000 < 8 HP for hilly regions
Other self
propelled
machines
@ 25% of cost limited to Rs, 40,000
Viz. Reaper, paddy
transplanter
Centrally sponsored schemes such as Macro Management of Agriculture and
National Agriculture Development Programme (NADP) provide farmers subsidy to
purchase agri machinery / implements. Each state government is responsible for
implementation and can also provide additional subsidy depending on its finances
Source: Department of Agriculture, Spark Capital
Tractors industry recorded 10% CAGR last 8 years
Source: Company, Spark Capital
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
5
Human & animal labor down from 63.5% to 13.7% in ~40 years
Source: Department of Agriculture, Spark Capital
Farm yield driven by power availability; cost of human and cattle farm power increasing
Status of farm mechanisation in India
Operation Current Mechanization Level
Soil working & Seed Bed preparation 40%
Seeding & Planting 29%
Plant Protection 34%
Irrigation 37%
Harvesting & Threshing For Wheat & Rice – 60-70%
For Other Crops – Less than 5%
Source: Industry, Spark Capital
Govt. targeting ~2Kw/ha of farm power by end of 12th five year plan
Source: Department of Agriculture, Spark Capital
Cost of conventional sources of farm power surge
(annual average, %) FY05 – FY08 FY09 – FY13
Food Articles 7.3 11.4
Fertilisers and Pesticides 1.7 7.8
Fodder 1.3 19.5
Cattle Feed 12.2 10.2
High-speed diesel 4.5 8.0
Electricity (agricultural) 2.3 8.7
Tractors 3.6 5.4
Wages (average) 6.2 17.3
Source: Ministry of commerce and ministry of labour, Spark Capital
0.00
0.50
1.00
1.50
2.00
2.50
1951 1961 1971 1981 1991 2001 2010 2013 2017E
Food Grain Yield (Mt/ha) Farm Power (Kw/ha)
8
18
2637 38 42
1723
21 19 20 19
11 1625 26 26 25
0
20
40
60
80
100
1971-72 1981-82 1991-92 2001-02 2005-06 2009-10
Proportional share in total farm power availability
Agriculture Workers Draught Animals TractorsPower Tillers Diesel engines Electric motors
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
Farm power availability and food grain yield (2010 – 2011)
Source: Industry, Spark Capital
6
Majority of the states have low farm power availability resulting in lower yields
1987
1809
1496
1256
1555
1047
1662
2470
1330
1297
10081039
931
1560
1377
1796
2544
12851397
2522
14051530
1780
24772294
2236
4144
3383
0
500
1000
1500
2000
2500
3000
3500
4000
4500
0 0.5 1 1.5 2 2.5 3
Fo
od
Gra
in y
ield
( K
g/ h
a)
Farm power (Kw/ha)
Farm Power Availability and Foodgrain yield (2010-2011)
Low Machanisation & Low Yield: 17StatesNational Average: 1.66 KW/ha
National Average: 1790 Kg/ha
High machanisation & High yield: 5 States
Low/ Moderate Machanisation & High / Average Yield: 7 States (Rice Based)
Goa
Meghalya
KeralaTripura
WB
ManipurUttarakhand
Punjab
Haryana
TN
AP
UP
Average farm power availability for the cultivated areas of the country has increased from 0.48 kW/ha in 1975-76 to 1.73 kW/ha at present and is likely to
rise to 2.0 kW/ha by 2017. Shrinking landholding size with majority of the farmers being small and marginal is also making individual ownership of
agricultural machinery progressively uneconomical.
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
7
Multiple drivers for mechanisation exist; marginal land holding is the key road block
Productivity
•Historically farm productivity has had a positive correlation with increased availability of farm power (mechanisation)
•Mechanisation improves utilisation efficiency of inputs
•Mechanisation improves timeliness leading to higher cropping intensity
Replaces human and animal labour
•Mechanisation is more efficient than conventional farm power sources
•At optimum utilisation mechanisation is cheaper than human and animal labour
Weather risk mitigation
•Mechanisation helps in flexibility in sowing, harvesting etc. as the time taken to do these activity reduces substantially
Savings in
• Seeds: 15-20%
• Fertilizer: 15-20%
• Time: 20-30%
Increase in
• Cropping intensity: 5-20%
• Farm productivity: 10-15%
• Reduction in manual labour : 20-
30%
Estimates of contribution from
mechanisation
~ 83% of farmers have average land holing < 2ha, accounting for 41% of agri
land; avg holding down to 1.23ha in 2006 from 1.33 in 2001 and 1.41 in 1996
Average no. of farm equipment/machinery possessed per 1000 farmer household in land
class (ha)
< 0.01 0.01–
0.40
0.41–
1.00
1.01–
2.00
2.01–
4.00
4.01-
10 > 10
All
Size
Plough 49 292 568 775 889 1030 1189 569
Harrow, Seed drill,
sprayer & duster
64 165 354 481 685 1051 1512 389
Thresher 2 19 43 53 74 106 198 44
Power Tiller 0 1 4 15 33 75 148 13
Tractor 2 2 22 25 75 189 375 29
Source: Company, Spark Capital
• Tractor and tiller penetration is significantly low
in < 2ha land holding category
• While the above mentioned factors are positive
for mechanisation, small land holding is the key
road block for mechanisation to pick up
• Small and marginal land holdings lead to
adverse economies of scale
• High cost of ownership leads to unaffordability
by small and marginal farmers (despite
subsidies)
• Poor credit worthiness leads to unavailability of
loans
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
8
Govt. plans to push ‘Custom Hiring’ to improve mechanisation among small farmers
• In order to lay special emphasis on farm mechanization and to bring more inclusiveness, a dedicated Sub-Mission on Agricultural Mechanization (SMAM)
for the XII Plan has been proposed with an estimated outlay of Rs.20bn for the entire plan period
•One of the key components of SMAM is to establish Farm Machinery Banks for Custom Hiring. The idea is to offset the adverse ‘economies of scale’, ‘high
ownership costs’ and ‘low credit worthiness of small farmers’ by providing farm machinery on hire to farmers
•The plan also looks to establishing Hi-Tech productive equipment centres to target low productive agricultural regions
• SMAM would also provide appropriate farm equipment to farmers based on the crop, region and agro climatic conditions
•Procurement subsidy will be provided for establishment of custom hiring centers. Financial support to private entrepreneurs for setting up custom hiring
centers through creation of Credit Guarantee Fund and Venture capital fund
Assistance provided under SMAM
Program Pattern of
assistance
Implementing
Agencies
Beneficiaries
Custom
Hiring –
Farm
Machinery
Banks
50% of cost of
procurement - limit
of Rs. 3mn per
Centre
State
Government
Individual Entrepreneurs/Self
Help Group (SHG)/ User
Groups (UG) of farmers,
Cooperative Societies of
Farmers
Hi-tech
centres
40% of cost of
procurement - limit
of Rs. 10mn per
hub
State
Government
Individual Entrepreneurs /Self
Help Group (SHG)/ User
Groups (UG) of farmers,
Cooperative Societies of
Farmers
Source: Company, Spark Capital
GoI – Ministry of
Agriculture
Credit
Guarantee Fund
Implementing
Agency
Entrepreneurs
• To begin with GoI would contribute 100%
of the corpus. Later banks, manufacturers
are expected to join and increase the
corpus
• Upto 80% of initial capital costs will be
financed/refinanced by the CGF holders.
20% will come from entrepreneurs.
Assets created will be hypothecated
• All individuals/cooperatives/NGOs eligible
to avail the facility
• Entrepreneurs will be provided three
years grace period that include EMI and
interest. Opportunity cost for far going
EMI / interest will be adjusted against
CGF
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
Segment FY10 FY11 FY12 FY13 1QFY14
0-20 hp 3,758 4,735 7,033 18,468 5,730
YoY% 61% 26% 49% 163% -4%
% of total 0.9% 0.9% 1.2% 3.1% 3.1%
VST 100% 100% 100% 36.0% 30.1%
M&M - - - 57.1% 57.3%
21-30 hp 66,025 70,194 75,753 36,780 13,832
YoY% 33% 7% 1% -51% 66%
% of total 15.9% 13.7% 12.5% 6.2% 7.4%
M&M 50% 55% 55% 27% 56%
TAFE 30% 29% 30% 59% 38%
31-40 hp 202,127 226,555 250,701 238,955 65,177
YoY% 28% 12% 11% -5% 0%
% of total 45.9% 41.6% 41.3% 40.4% 34.9%
M&M 43% 44% 41% 38% 39%
TAFE 32% 31% 36% 35% 28%
41-50 hp 105,811 154,037 168,695 214,864 85,519
YoY% 25% 46% 10% 27% 70%
% of total 24.0% 28.3% 27.8% 36.4% 45.7%
M&M 27% 26% 28% 44% 42%
TAFE 11% 11% 15% 16% 25%
> 51 hp 62,484 89,619 105,481 81,848 16,700
YoY% 30% 43% 18% -22% -25%
% of total 14.2% 16.4% 17.4% 13.9% 8.9%
International
Tractors 13% 13% 13% 21% 26%
John Deere 34% 32% 29% 27% 25%
Total 440,208 545,108 607,663 590,915 186,958
9
VST remains a small player in tractors; does not plan to enter the > 30hp space
Source: Company, Spark Capital
•Until FY12, VST was practically the only player in the 0-20 hp segment,
post entry of M&M and a few others, VST tillers’ share in the segment
declined significantly. However, the segment itself clocked a steep
growth and grew 2.5x in FY13
•The entry of new players in the segment coincided with supply side
issues for VST, which saw tractor volumes decline 11% yoy in FY13
•M&M’s Yuvraj, which is a 15 hp two-wheel drive tractor was the major
growth driver of the segment. In comparison, VST’s 18.5 hp tractor is a 4
wheel drive variant and is used extensively in Maharashtra and Gujarat
regions in wine yards.
•For VST tillers, the sub-30 hp category is the key as the upcoming
products (recently launched a 22 hp tractor) would be in the 22 – 30 hp
segment. VST also plans to launch two-wheel drive variants of the 18.5 h
and 22 hp tractor in the near future
•With the steep increase in capacity for VST, launch of new products and
overall growth in the sub 30 hp segment, we expect VST to see a tractor
volume CAGR of ~17% from FY13 – FY16. From FY06 – FY13, VST
witnessed a tractor volume CAGR of 26%, albeit on a low base
•We note that being in the < 30 hp category, VSTs tractors would
continue to be driven by subsidies provided by state and central
government
•With a strong position in tillers and a pan India network, we expect VSTs
new products to do well as it continues to cater to the small/medium
farmers who plan to upgrade from a tiller. Moreover, smaller tractors
would also cater to farmers who also want to use tractors for non-farm
purposes
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
10
Good Kharif monsoon so far; strong reservoir positions augur well for Rabi
Rabi is expected to be good driven by strong reservoir positions
Source: CWC, Spark Capital
Percentage of full reservoir level (FRL) 100% 91%-99% 81%-90% 71%-80% 61%-70% 51%-60% 41%-50% <40%
North (HP,Punjab & Rajasthan) 2 3 1 - - - - -
East (Jharkhand, Odisha, Tripura & WB) 1 - 5 2 1 2 3 1
West (Guj.& Mah.) 4 4 1 4 2 1 2 4
Central (MP, UP, Uttarakhand & Chh.) - 7 3 1 - - - 1
South (Karnataka, TN, AP & Kerala) 8 8 4 4 3 - 1 2
Status of 85 reservoirs (Country wide) 15 22 14 11 6 3 6 8
Cumulative weekly seasonal rainfall departure (%) from LPA
Source: IMD, Spark Capital
Trend in food grain acreage and average rainfall (June to Sep)
Source: Company, Spark Capital
105
110
115
120
125
130
650
700
750
800
850
900
950
1,000
1,050
1990-9
1
1991-9
2
1992-9
3
1993-9
4
1994-9
5
1995-9
6
1996-9
7
1997-9
8
1998-9
9
1999-0
0
2000-0
1
2001-0
2
2002-0
3
2003-0
4
2004-0
5
2005-0
6
2006-0
7
2007-0
8
2008-0
9
2009-1
0
2010-1
1
2011-1
2
2012-1
3
Rain fall (mm) LHS Acreage (mn Ha)
2823
54
37
27
1916 16 17 15 13 14
118 6 4
0
10
20
30
40
50
60
5th
Jun
12th
Jun
19th
Jun
26th
Jun
3rd
Jul
10th
Jul
17th
Jul
24th
Jul
31st J
ul
7th
Aug
14th
Aug
21st A
ug
28th
Aug
4th
Sep
11th
Sep
18th
Sep
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
Revenue and EBITDA margin
Source: Company, Spark Capital
11
FY14 to see VST get back lost volumes in FY13; strong historical CAGR
0
5,000
10,000
15,000
20,000
25,000
30,000
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
VST - Power Tillers (nos)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Tractors (nos)
FY13 was first year of YoY decline in tiller volumes for VST
Source: Company, Spark Capital
Similar trend seen in tractor volumes for VST
Source: Company, Spark Capital
•VST revenues have grown at a 20%+ in the last seven years. EBITDA
margins have averaged ~14.5% in the same period
•FY13 revenues declined on the back of decline in tillers and tractor
volumes. Volumes declined on the back of a weak monsoon and delay in
announcement of subsidy schemes in a few states
•Based on our estimates subsidy (collected either directly from the state
government or through dealers) accounts ~25% of revenues
•VST also markets rice transplanters which are primarily traded goods.
Growth in rice transplanters is expected to see a steep increase on the
back of awareness and significant reduction in labour requirements.
•Typically the government approves a list of products that are eligible for
subsidy. This approval is given after the product undergoes testing; also
the price of the product is approved by the govt.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14e FY15e
Revenue EBITDA Margin %
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
12
Manufacturer typically bears the impact of delay in subsidy disbursals
Farmer
Department of agriculture (State)
After verification, advices
distributor
Distributor
Supply at subsidised price to
farmer and submits papers to
department of agriculture for
subsidy
Application filed through
village/district
administration
Distributor pays manufacturer
Typically the farmer opts
for a particular brand
based on comfort with
dealer/distributor
Farmer chooses from a
list of approved
manufacturers
Distributor receives the
farmer’s share at the
time of supplying the
equipment
Delay in subsidy
disbursal leads to delay
in distributor paying the
subsidy component to
the manufacturer
Average 4-5% increase in ASPs over the last 10 years
Source: Company, Spark Capital
-
50
100
150
200
250
300
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Rs. /
un
itT
ho
usands
ASP for Tiller ASP for tractor
• Sale of power tillers and tractors (below 40 hp) are primarily dependent
on subsidy. Farmer chooses the brand based on comfort with dealer or
in some cases by way of credit offered by the dealer on particular brands
• In a typical sale, the dealer pays the non-subsidy portion to the
manufacturer within the decided credit period. However, the subsidy
portion that the dealer received from the government is the primarily
cause for high debtor receivables for VST Tillers
• Our channel checks and management interaction suggests that in a few
states such as Orissa, growth in tiller sales is steep primarily driven by
the timely subsidy disbursals; moreover the entire process of application
and approval is done online
• Historical trend suggests a 4-5% annual average increase in ASP.
Our channel checks suggests a 6 – 7% price increase approved by
the government in 1QFY14.
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
-60%
-40%
-20%
0%
20%
40%
60%
80%
0
1000
2000
3000
4000
5000
6000
7000
8000
1Q
FY
13
2Q
FY
13
3Q
FY
13
4Q
FY
13
1Q
FY
14
2Q
FY
14E
3Q
FY
14E
4Q
FY
14E
Power Tillers (quarterly volume) YoY %
13
Volume growth expectations driven by low base, subsidy approvals and new launches
2QFY13 is a significantly lower base
Source: Company, Spark Capital
• Quarterly trend in tiller volumes suggests a steep 45% decline in
2QFY13 was primarily the cause for a weak FY13. The quarter
witnessed steep decline driven by the weak monsoon and delay in
announcement of subsidies by few states
• Our interaction with the management and channel checks suggests that
this year a good monsoon and the timely announcement of subsidies by
most states would be a key driver for volumes in FY14 especially in
2QFY14
• We expect tiller volume growth of 25% in FY14 (good monsoon and low
base) and 15% in FY15.
• Tractor volumes on the other hand is expected to be primarily driven by
new product launches and capacity addition (new plant)
Expect tractor volumes to grow 17.5% CAGR from FY13 - 15
Source: Company, Spark Capital
• With the new plant being operational in November-2013, significant
capacity expansion and new product launch is expected to drive tractor
volume growth in 4QFY14.
• Currently offering 18.5 hp tractor, the company is expected to launch
new products leading to the growth in tractor and other non-tiller
segment
• 22 hp tractor in 2QFY14
• Two wheel drive variants of 18.5hp and 22hp tractors
• 22hp and 18.5hp high speed tractors
• 22-30hp tractors with power steering and torque generators
• Power weeders and Cono weeders
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
0
500
1000
1500
2000
2500
1Q
FY
13
2Q
FY
13
3Q
FY
13
4Q
FY
13
1Q
FY
14
2Q
FY
14E
3Q
FY
14E
4Q
FY
14E
Tractor Volumes (quarterly volumes) YoY %
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
14
VST has successfully managed its working capital despite dependence on subsidy
FY13 was the first year to see increase in receivable days in last 10Y
Source: Company, Spark Capital
•Over the last 10 years receivable days have declined steadily, except in
FY13 when it went up
•Despite the increase in receivables, impact on working capital is lower
as VST’s total payables witnessed an increase driven by increase in
‘dealer deposits’, ‘advance received from customers and dealers’ and
‘incentives and marketing expenses payable’
•Within the receivables, we notice that receivables for a period exceeding
six months as a % of total receivables have gone up to 21% in FY13 vs.
and average 5% in the last eight years. Despite this, overall receivables
have gone down from Rs. 1.2bn in FY12 to Rs. 0.97bn in FY13. We
believe that the receivables exceeding six months could be subsidy
receivables. The decline in other debtors (less than six months) could be
driven by decline in sales in FY13 and quicker recoveries from dealers
Receivables outstanding for > 6 months
Source: Company, Spark Capital
Drivers for increasing payables (as a % of other current liabilities)
Source: Company, Spark Capital
0%
5%
10%
15%
20%
25%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Receivables > 6 months as a % of total receivables
0%
10%
20%
30%
40%
50%
60%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Dealer Deposits Advance from dealers Incentives, mktg expenses and others payables
0
20
40
60
80
100
120
140
160
180
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Days
Inventory Debtors Trade creditors Other Current liabilities
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
15
Estimates and valuations
Volume and realisation expectations
Source: Company, Spark Capital
Consistent dividend payout
Source: Company, Spark Capital
Forward PE Band
Source: Bloomberg, Spark Capital
Volumes (units) FY11 FY12 FY13 FY14e FY15e
Tiller 23,449 26,154 21,231 26,539 30,520
yoy% 23% 12% -19% 25% 15%
Tractor 4,735 7,038 6,233 7,168 8,602
yoy% 26% 49% -11% 15% 20%
Average Realisation (Rs.)
Tiller (‘000) 114 115 123 126 130
yoy% 2% 1% 7% 3% 3%
Tractor (‘000) 221 234 248 260 265
yoy% 3% 6% 6% 5% 2%
0%
5%
10%
15%
20%
25%
30%
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
7.0x
5.5x
4.0x
10.0x
8.5x
0
100
200
300
400
500
600
700
Sep
-08
Mar-
09
Sep
-09
Mar-
10
Sep
-10
Mar-
11
Sep
-11
Mar-
12
Sep
-12
Mar-
13
Sep
-13
Forward PE - frequency table (last four years)
P/E Multiple
range
No. of days
traded
% of of no. of
days
Cumulative
traded no. of
days
%
of Cumulative
no. of days
4 - 5x 15 1% 15 1%
5 - 6x 285 21% 300 22%
6 - 7x 210 15% 510 37%
7 - 8x 383 28% 893 64%
8 - 9x 312 22% 1205 87%
9 - 10x 164 12% 1369 99%
10 - 11x 19 1% 1388 100%
Total 1388 1388
Source: Company, Spark Capital
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
16
Abridged financials
Abridged Financial Statements - Standalone Key metrics
Rs. mn FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E
Profit & Loss Growth ratios
Revenues 5,306 4,817 5,957 7,055 Revenues 24% -9% 24% 18%
Manufacturing & Other Expenses 4,578 4,095 5,094 6,069 EBITDA 4% -1% 20% 14%
EBITDA 728 722 863 986 PAT 8% -3% 19% 14%
Depreciation 32 34 47 59 Margins
EBIT 696 688 816 927 EBITDA 13.7% 15.0% 14.5% 14.0%
Net Interest Exp / (inc) 9 13 12 12 EBIT 13.1% 14.3% 13.7% 13.1%
Profit Before Tax 734 696 822 934 PAT 9.4% 10.1% 9.7% 9.3%
Tax 234 210 247 280 Leverage & WC ratios
Adj. Net Profit 499 486 576 654 Debt to equity (x) 0.1 - - -
Balance Sheet (Rs. mn) Current ratio (x) 2.2 2.3 2.0 2.4
Shareholders Equity 2,049 2,444 2,914 3,450 Debtor days (Sales) 64 84 70 70
Loan funds 160 - - - Inventory days (COGS) 58 82 80 78
Deferred Tax Liability (Net) 32 29 29 29 Creditor Days (COGS) 64 73 70 67
Sources of Funds 2,241 2,473 2,943 3,479 Performance & turnover ratios
Net block 570 774 1,127 1,368 RoCE 25.8% 21.0% 21.6% 20.6%
Capital WIP 62 142 142 40 RoAE 27.1% 21.6% 21.5% 20.5%
Current assets, loans & advances 2,340 2,402 2,933 3,204 Total asset turnover (x) 2.3 1.8 1.9 1.9
Current liabilities & provisions 975 885 1,299 1,173 Fixed asset turnover (x) 6.1 4.7 4.5 4.2
Net Current Assets 1,365 1,516 1,633 2,030 Valuation metrics
Application of funds 2,241 2,473 2,943 3,479 Current price (Rs.)
Cash Flows (Rs. mn) Shares outstanding (mn) 8.6 8.6 8.6 8.6
Cash flows from operations (96) 499 499 376 Market capitalisation (Rs. mn) 3,710 3,710 3,710 3,710
Capex (109) (318) (400) (198) Enterprise value (Rs. mn) 3,663 3,381 3,372 3,300
Free Cash Flow (205) 181 99 177 EV/EBIDTA (x) 5.0 4.7 3.9 3.3
Cash flows from investments 28 (109) (400) (198) Adj. Per-share earnings (Rs.) 57.8 56.2 66.6 75.7
Cash flows from financing 61 (263) (91) (105) Price-earnings multiple (x) 7.4 7.6 6.4 5.7
Closing cash and cash equivalents 199 326 338 410 Dividend yield (%) 2.1% 2.1% 2.5% 2.8%
429
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
17
Appendix: Power tillers
MODEL VST SHAKTI 130DI
Engine Type 4 stroke Single cylinder diesel engine
Displacement 673.4 cc
Max. Torque 4.2kg-m/ 1900rpm
Max.HP 13.0 HP@2400rpm.
Dry Weight 125 Kgs
Fuel High Speed Diesel
Fuel Tank Capacity 11 ltrs.
Forward: 6 Speeds
Reverse 2 Speeds
Rotary: 2 Speeds ( Optional 4 Speeds)
Weight 280 Kgs.
Tilling Width 600 mm maximum
No. of tynes 18
Tilling Depth 150mm maximum
Plough Depth 220mm maximum
Length * Width * Height 2320 mm x 810 mm x 1300 mm
MODEL VWH-120
Engine Type 4 stroke Single cylinder diesel engine
Displacement 631cc
Max. Torque 3.0kgm/ 1900rpm
Max. HP 9.0hp/ 2200rpm
Dry Weight 119Kgs
Fuel High Speed Diesel
Fuel Tank Capacity 11 ltrs.
Forward: 6 Speeds
Reverse 2 Speeds
Rotary: 2 Speeds ( Optional 4 Speeds)
Weight 280 Kgs
Tilling Width 540 mm maximum
No. of tines 16
Tilling Depth 150mm maximum
Plough Depth 220mm maximum
Length * Width * Height 2300 mm x 900 mm x 1210 mm
Source: Company, other products such as tractors, paddy transplanters details available at http://www.vsttillers.com/product_list
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
18
Appendix: Operational capability of a power tiller
Operations Attachments Average output/day (8 hr working)
Land Levelling Leveller Depends on earth work
Seed Bed Preparation Rotavator mould board plough, Harrow, Plank Leveller 1 - 3 acres
Puddling Rotavator with cage wheel 3 acres
Ridging Ridger 3.5-4 acres
Sowing Seed drill, Fertilizer drill 3 acres
Intercultivation Tiller weeder, Cultivator 3 acres
Plant Protection Sprayer / Duster 3 acres
Pumping Water Centrifugal pump 600LPM at 15' head
Reaping Reaper 2.5 acres
Mowing Mower 2 acres
Harvesting of pulse crop Harvester 2 acres
Sugarcane stubble removal Shorter Rotavator 2 acres
Tubercrop harvesting Potato digger, ground nut digger 2 acres
Threshing Thresher
Wheat-16 Q
Paddy - 30Q
Bajra - 45 Q
Winnowing Winnower 100Q
Power Generation Alternator 7.5 KVA
Haulage 1.5mt trailer 15 KMPH (max)
Others Flour mill, huller, flaking machine, chaff cutter As per engine HP
Source: Company, Spark Capital
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
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Absolute Rating Interpretation
Buy Stock expected to provide positive returns of >15% over a 1-year horizon
Add Stock expected to provide positive returns of >5% – <15% over a 1-year horizon
Reduce Stock expected to provide returns of <5% – -10% over a 1-year horizon
Sell Stock expected to fall >10% over a 1-year horizon
Recommendation History
Date CMP Target price Rating
- - - -
- - - -
- - - -
- - - -
- - - -
VST Tillers Tractors Ltd. (VST) CMP
Rs. 429
Target
NA
Rating
NA
Analyst Certification of Independence
The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research
analyst’s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report.
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Disclosure of interest statement Yes/No
Analyst ownership of the stock No
Group/directors ownership of the stock No
Broking relationship with the company covered No
Investment banking relationship with the company covered No