1) Both standalone and consolidated B/S & P/L are the same. As in, there is no subsidiary income that is quoted seperately and then merged into consolidated. (Atleast till the latest AR)
2) There is no mention of Gove Investment & Finance in the latest AR. I guess this is a part of the larger VST group, and no revenue from Gove investments would flow into VST Tillers and Tractors (VTTL).
3) There is a large untapped opportunity because of NREGA and other Govt. subsidiaries. Hence inspite of the agriculture sector growing at only 3-5%, the tiller & small tractor growth is nearing 20%.
4) Management does acknowledge threats from M&M and Chinese imports and is taking measures to strengthen their distribution network.
||FY 11 Sales Units
||FY 11 Revenue
||FY 11 Price per unit
||FY 10 Sales Units
||FY 10 Revenue
||FY 10 Utl.
||Sales Unit increase%
||Revenue increase %
||FY 11 Contribution to Overall Sales%
||FY 10 Contribution to Overall Sales%
As we can deduce from the numbers above, there is hardly any pricing power in the major revenue generators - Power Tillers and Tractors division. Almost the entire revenue increase has happened because VTTL sold more units. Given the state of their raw material (engines, steel, fuel cost etc), there is very little scope of expansion in margins (in fact, we can see margins coming down because of severe competition in the tractors category).
Another point to notice in the number vis-a-vis the MD&A of the AR, there has been a lot of stress in Rice Transplanters division although the numbers and the price speak for themselves. Acceptability seems to be an issue, but if Management continues to plough here without much traction, we might see a compression in the overall margins (although it contributes very little to the overall sales figure).
6) Now that we have deduced that there is little pricing power, and VTTL's growth will happen only through units increase, let's look at capacities.
||FY 10 Capacity
||FY 10 Production
*FY11 AR didn't break out the capacities for these two, but did give production numbers. I extrapolated (approx.) the recent interview numbers of 35000 Tillers and 10000 Tractors back to FY11 and FY10.
#Most of this stuff is for captive use
In the FY11 AR, the management had indicated that it would invest Rs. 66 cr in a factory to produce 30000 units of tractors. But in the recent article, they say they require 100 cr for this factory. Rs. 34 cr additional in about 6 months - maybe inflation is hitting them too :)
Anyway, let's estimate the approximate sales for the company this year, given the management says they are at 100% production capacity.
Let's look at the history of VTTL of production vs selling.
||FY 11 Production
||FY 10 Production
Sales can be greater than production because of inventory etc. But the takeaway is that almost all that is produced is being sold.
Management's interview says that their production capacity of 35000 tillers and 10000 tractors is producing at full capacity. Let's try to estimate revenue assuming we sell 100% of the stuff we produce (we can give a 5-10% discount later for inventory etc.)
Let's assume prices have been kept constant to FY11 numbers (reasonable assumption given the price increase last time was just 1-2%)
||Price per unit
Total Sales figure comes to Rs. 634 cr. Let's give a 10% discount for inventory holding etc., we arrive at a figure of Rs. 571 cr (that's a 34% growth!!).
Actual figure for H1 FY11 is 250 cr. So, we are saying that H2 FY11 will be 321 cr.
Assume a range of 8-11% net profit margin (which is basically an estimate of our margin of safety kinds), we arrive at a figure of Rs.45 cr - Rs.62 cr. On a base of 86,39,528 shares, the EPS works out to Rs. 52 - Rs. 71. Most probably, we are ending up at a EPS of Rs. 62 for this year.
If VTTL is able to achieve this growth of 34% (even at Management's figure of Rs. 550cr, the growth comes to about 29% growth), then the market should typically re-rate it. If it does, the current prices look fairly attractive.
6) Finally, the new facility is set up for 30000 tractors. However, it is unclear if the facility will be used to manufacture power tillers and tractors or just tractors (AR usually gives capacity numbers for Power Tillers and Tractors to-gether, and hence the doubt). I am not sure if they can double the turnover by FY14. The factory gets completed by end of 2012 (not FY12). Will they be able to sell 3 times the number of tractors in 1.5 years? Not too sure. However, even if they are able to utilize 50% of their capacity, we should be seeing an EPS north of 85-90 a year, which makes the current prices very attractive.
Of course, the govt. might pull subsidies from under the carpet, and then we can all go home with empty pockets with this investment.
P.S: Mannn..that was probably my longest post on Valuepickr ever!