- Date 4th Mar 2014,
- CMP: Rs 825
- Small Cap – Mkt Cap 716 crores
- Advice: Buy
Here is a note on VSTT (VST Tillers and Tractors Ltd).
- VSTT is an agriculture equipment manufacturing firm with products like tractors, power tillers and rice planters.
- Its turnover in FY2013 was 482 crores, with profits at 49 cr. Market Cap. today is 716 cr, at CMP 825.
- The mfg plant is at Whitefield, Bangalore for all 3 products with capacities of tractors (5k), tillers (25k) and engines (32k). It has commissioned a new tractor plant in Hosur, TN with capacity of 36k tractors. (k=1000)
- VSTT has tie ups with several companies of Mitsubishi of Japan for tractors, tillers and diesel engines.
- The Sales numbers in FY13 were tractors (6,233), power tillers (21,231) and rice planters (404).
- Products are also exported – Forex revenues in FY13 were 16 cr., while imports were 21 cr., a net importer.
- VSTT has a strong brand and good reputation in the farm sector in India.
- Domestic sales are through a nation-wide network of Dealers. See segments Fig 1.
- Shareholding pattern is Promoters – Indian 51%, Foreign 3%, MF/FII/Institutions 7.8%, Individuals 30.2%, Bodies Corporate 6.4% and Others 1.6%. It appears to be widely distributed in Retail.
- The Hosur plant was set up with 70 cr investment and was funded through internal accruals.
- It will have a 36k tractor capacity. At full capacity it will generate revenue of 890 crores. Thus in a 2 year period the current revenues can triple. (JainMatrix estimates – based on FY13 tractor average revenue of 2.47 lakh/unit)
- Tractor is a fast growing segment, and the projected sales volume will be 7.1% market share (of FY13 market).
- To expand exports, VSTT has successfully homologated and obtained export certification to expand its global footprint for tractors, for the current markets of Africa, Middle East, Russia and Turkey, and beyond.
- This aggressive growth plan looks possible.
- In India, agriculture is a steady industry with a growth rate of 3.3 % (CAGR) over last 7-8 years. The projection for FY14 is 4.8% growth, compared to FY13 with just 1.9% growth. (per PM’s Economic Advisory Council).
- VSTT represents the mechanisation and automation requirements of farming. This trend is visible with the rising cost of rural labour and productivity pressures.
- Food demand in India is inevitably surging as 1) the population grows 2) improving affluence of population, all results in 3) better diet and nutrition levels.
- The govt. has boosted agriculture with tax concessions for farmers and funding schemes for their investments. It has also raised Minimum Support Price (MSP) for produce and they buy from farmers at these higher rates.
- The Power Tiller industry relies heavily on Government subsidies and schemes for funding purchases.
- The Indian tractor market is the largest in the world. Tractor sales in FY13 were 5,90,672 units.
- Thus VSTT at 6,233 had just 1% of the Indian tractor production in FY13.
Share Overview, Financials and Valuations
- The Share of VSTT with FV=10 has risen sharply by 151% in last 1 year. See Fig 2.
- It’s a regular dividend stock, and the 90% declared has a dividend yield of 1%.
- There was a share bonus in 2010 with ratio 1:2.
- Revenues, EBITDA and PAT have grown at 18%, 21% and 22% CAGR over a 5 year period. See Fig 3.
- Margins are showing an improving trend over the last 3 years.
- Current P/E is 9.8 times (TTM). Price/ Book is 2.9 times.
- The FY14 estimate shows a good upside on EPS. The projected P/E based on this will be 9.2 times.
- Cash flow has been mostly positive or a small negative, see Fig 4.
- Debt is zero, and cash on hand is 32.9 cr, about Rs 38/share.
- ROCE is 29% and RONW is 18%. These are very high, and also may rise in 1-2 years with the utilization of the new capacities.
- PEG at 0.38 indicates undervalued status.
- VSTT is a firm riding on three clear trends:
- Automation in Indian farming is up as farming incomes rise even as rural wage costs inflate.
- Massive expansion of VSTT tractor manufacturing capacity which can triple revenues in 2 years.
- FY14 will be a very good year for Indian agriculture, providing incomes needed to invest in automation.
- Based on all this, VSTT is an aggressive agricultural growth stock.
- Buy with a 2-3 year perspective.
JainMatrix Knowledge Base:
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One thought on “VST Tillers Tractors – Agro Growth”
Reblogged this on JainMatrix Investments and commented:
Two updates/ news articles on VST Tractors & Tillers
1) VST forays into mini tractors
2) VST to roll out mini tractors for small farmers
This is interesting news for followers/ investors in this firm.