VSt Tillers and Tractors limited


(Vishnu Ch) #181

ANALYST MEET - from Capital Markets

Hopes to do sales of 10000 tractors in FY 2017 against 7700 in FY 2016 and tillers should grow 15%

The company held its investor meet on 11th June’16 and was addressed by key management

Key Highlights

  • Typically a Power Tillers costs around Rs 1.25 lakh as compared to tractors which start at around Rs 2.75 lakh onwards and goes on above Rs 10 lakh depending upon the HP power and specifications.

  • Due to fragmented land and large number of unit farms, Power Tillers remain the most suitable equipment for the farmers having such unit farms and fragmented land. For implementing farm mechanization also, Power Tillers are best way to start with.

  • However the market is more driven by subsidy schemes run by States and is more from push model than on pull basis. As per the management, though through education and awareness, the importance of Power tillers is getting understood, but the capital subsidy plays a significant role in generating the demand.

  • VST Tillers has market share of more than 50% in Power Tillers market in India.

  • The company has an installed capacity of around 60000 units of Power tillers and around 36000 units for tractors. The company is operating around 70% of installed capacity for tillers and less than 25% for tractors. The company has assembly type operations which help it to scale up and scale down its operations depending upon market conditions.

  • In tractors besides entering new markets, the company has launched 2 new models of 25 HP and 30 HP. Currently the company has market share of around 12-14% in less than 30 HP market. The market did not perform well due to lower than expected rainfall in past 2 years, but with the expectation of normal monsoon, there is a pent up demand visible for the segment. The company is expected to sell around 2000 tractors in June’16 quarter up by around 20% on YoY basis.

  • As per management, while this was more to do with the inventory built up by the management, going forward, if the rainfall is as per the planned, then the double digit growth can continue.

  • The company operates in a highly competitive segment in which cheaper Chinese tillers pose a great threat to market share of other organized players. Further lot of other domestic players has started entering this segment looking at attractive returns. Hence competition continues to remain a challenge.

  • For Tractors, Maharashtra and Gujarat continue to account for 75-80% of company’s sales but contribution from the other states will increase going forward. In two years the company expects Maharashtra and Gujarat should come down to around 50-60%.

  • For Power Tillers, apart from Andhra Pradesh, Telengana, Tamil Nadu, Karnataka and Orrisa, the company is entering into new markets for increasing its reach and presence.

  • Orissa has come up to be a major market for the Power Tillers. However the company did lost some market share due to increase in competition both domestic and from Chinese.

  • Going forward, a higher penetration policy and increasing new markets and newer products will drive the sales growth.

  • FY 2017 is expected to be normal monsoon and thus hope that tractors will see good growth. Thus it should do sales of 10000 tractors in FY 2017 against 7700 in FY 2016 and tillers should grow 15%.

  • Subsidy receivable from government sales is Rs 45 crore.

  • Africa is a good market for power tillers but it is dominated by cheap imports from China. The company is not able to compete with Chinese companies there.

  • The company does not have any acquisition plans and is sitting with net cash of more than Rs 150 crore.


(Vijay Dosapati) #182

VST Tillers’ June Quarter Results:

http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/7C18BEB4_211E_4DC0_A7C6_8A15A2872128_165354.pdf

Transcript of Con-call held on 1st August 2016:

http://www.vsttillers.com/sites/default/files/announcements/ConCall_Transcript.01.08.2016.pdf

Recently I visited VST Tillers dealer in Hyderabad to understand their business. Some of the points which may be of value are:

  1. Subsidies for Tillers are upto 50% (MRP is ~ Rs. 1,65,000 and the max. subsidy given to a customer is Rs. 75,000) and for Tractors, it is upto Rs. 1 Lakh (MRP of tractors varies from Rs 3.3 Lakh to Rs. 4.3 Lakh for 18 to 27 HP tractors)

  2. Maximum sales of tillers are tractors are through subsidies. The dealer makes around 80-85 % of sales through tillers and tractors, the rest being power reapers, rice transplanters and spares

  3. The process for availing subsidy on tillers and tractors is:
    a. The farmer submits the form with the local panchayat office requesting for subsidy on the tiller/ tractor. He mentions the brand and make of tiller which he intends to purchase.
    b. The govt dept scrutinizes the requirement, and after due diligence provides sanction to the farmer. This takes process 1-2 months
    c. The farmer then needs to submit the DD for non- subsidy amount (If the MRP is tiller is Rs 1.5 L and subsidy given is Rs. 80K, the farmer needs to give DD for Rs. 70K)
    d. The Govt dept then releases the entire amount to the nearest dealer and provides the info of the same to the farmer
    e. The farmer goes to the dealer and collects the tiller/ tractor

  4. VST has a good brand name in south and western regions because of its product reliability and product features which suit the requirements of the farmers

  5. The challenge which he faces is entering new markets (mandals and villages within the district). This is because the farmers are generally skeptical of using new brands and fear about the service incase something goes wrong. If he convinces 2-3 farmers in a mandal to use VST, then it gets easier for him to generate more sales within that region.

Disc: Invested


(Rohit Kotewale) #183

Any estimates for Q2 results due tomorrow?


(Dr. TarunDS) #184

http://www.vsttillers.com/sites/default/files/financial_results/Un-Audited_Results.30.09.2016.pdf


#185

From Capital Market -

Net profit of VST Tillers Tractors declined 24.22% to Rs 13.42 crore in the quarter ended December 2016 as against Rs 17.71 crore during the previous quarter ended December 2015. Sales declined 4.70% to Rs 144.26 crore in the quarter ended December 2016 as against Rs 151.37 crore during the previous quarter ended December 2015.


(sivaprakasamp) #186

VST reports strong sales growth, but PAT down yoy.
2e8b3801-778d-407b-8aac-4e87e34a3942.pdf (1.1 MB)


(narendra) #187

Q4 and FY17 concal notes:

***TRACTORS(tr):

Sold 9635 tractors in fy17. Realization /tr: 2.81 lac.
Overall tractor industry growth during the yr is 17%. Major growth from 41 to 50HP tractors. Less than 30 HP segment growth was flat. VST volume growth of 34%(Q4FY17) in compact segment against industry negative growth of 5%. For the year volume growth of 26% in compact segment against industry growth of 1%. VST market share in compact segment increased to 16.5% from 13.2%.

Launch of 27 HP VIRAAT tractors helped growth. Sold 2200 VIRRAT tractors in fy 17.Expect to sell around 3.5K TO 4K this yr(VIRAAT PLUS MODEL).Overall largest selling tractor for company is from 18HP tractor.
Company to focus more on tractor growth. Launched two new models ( 27HP and 17HP).
Expect 15% growth in tr for next two yrs.
May launch new higher HP tractors in future.
Installed capacity of 36k tractors. Currently building about 10kto 12 k tractors.

TILLERS(ti):
Total tiller sold :25,515 for fy17, for Q4:7,700.
Realisation of 1.32 lac/tiller vs 1.29lac.
FOR FY 17 tiller industry had negative growth of 11%. VST adverse growth of -7% but market share increased from 56 to 58%. Degrowth is due to drought in southern states and delay in launch of subsidy schemes in AP,Odissa and Bihar.
90% of tiller sale happens on Govt subsidy.Type of subsidy varies from state to state. Full fledged DBT already in states likeTN,GUJARAT and Odissa. VST is tying up with banks and NBFCs to provide loan to farmers so that can pay full amount as per DBT norms.
Some states alraedy announced subsidy for this season . Govt allocation is for around 50k tillers.looking to gain market share of 30k.
Expected tiller industry growth of 5 to 6%. VST Continue to be dominant player.Planning to launch new higher HP power tiller.
Capacity of 60k tiller on two shift basis. Currently producing around 2.5k/month.Ample capacity is available to increase.
POWER WEEDER : Exclusive rights to sell MTD power weeder.small volume size.8 hp. Market size of 4k/yr.

REVENUE AND MARGINS:
Tractors contribution increased to 41% from 34%.Tillers contributed 56% down from 62% compared to FY16.
FY17 total revenue 710 cr v/s 658 cr in fy16. PBT for FY 17 is 15%(99 CR) v/s 17%(110CR) in FY16.
Q4FY17, revenue is 198 cr v/s 177 cr(Q4FY16) . PBT is 27 cr (Tillers: 108cr, tractors:75 cr)

Reduction in margins due to planned increase in expenses in employee cost , sales promotion and degrowth in tillers. Employee cost and other expenses is around 19% in fy17. As sales improve it is expected to come down to around 16% of sales.
Expect 3 to 4% margin improvent in EBITDA by fy18. Expect good growth with good monsoon and govt schemes.Major sales force expansion has completed .
Raw of raw materials is rising ,Q1fy18 to see major impact of increase in raw materials.

DEALERS:
By 2021 company will have 450 dealers from current 250. Currently offering 1.5% to dealers to encourage them to pay within 7 days ,which helps in better cash flow.

CAPEX :
Total of 128 Crs in fy18
80cr for new product development. When new productd gets launched expect positive impact to revenue. Full benefit to see from FY19 onwards.
Rest 40 Cr for infrastructure ,machines in Mysore plant and new plant at Malur to expand capacity of tillers and other products. Expect to start Malur facility operation by q1 fy19.
Plan to invest 200 cr over next 5yrs.

disclosure: not invested ,have positive bias.


(sagararya) #188

I quite like this story. The company generates good amount of cash and has 200 cr of cash on its books. It has just 2% market share in the overall tractor segment although it focuses more on the <30 hp segment. It has consistently gained market share in both tractors and tillers and is also working on new products like power weeder and 27 hp tractors which should help the company grow. The tiller segment seems to have stagnated though. Surprisingly, the capacity of the company is equal to the annual sales of tiller in the country. Does the company have export plans? Tiller market even in Bangladesh is 3x that of India and given the small farm sizes I would have expected this market to grow further. Any reason why the sales have remained flattish?

Growth in the tractor segment, improvement in margin, focus on advertising and distribution, improving working capital due to DBT and dealer discounts, strong cash generation, structural theme of farm mechanization with healthy balance sheet seem to be the key drivers for the company going forward.


(sivaprakasamp) #189

Another factor which we must consider is Honda Siel starting off with Tiller and brush cutter production. Honda is known to capture a niche market share wherever they are provided all other factors like dealership etc are in place


(sagararya) #190

I would look at that as a positive since it will help in growing the
market. VST has an extremely strong network in South and that’s their major
market. North is dominated by Chinese imports. Three big States for tillers
are maharastra, Gujarat and UP accounting for almost 50 percent of the
market. VST gets 70 percent of it’s tiller revenue from Maharashtra and
gujarat which means it already has a strong distribution network here which
won’t be easy to breach. Honda Siel coming in and creating more demand will
be good for the industry I believe.

VST has recently implemented a few credit policies with it’s dealers that
may give an opportunity to Honda to capture the market share if they are
very aggressive with their credit terms. Will wait and watch? Has Honda
launched it’s product in the market already?


(narendra) #191

I will be attending Vst tillers AGM tomorrow. Any questions please let me know.


(sivaprakasamp) #192

Thanks Narendra, I would be interested to understand the impact of Honda launching Tillers in the market. Thanks!


(sagararya) #193

Hey Narendra. I have a few questions -

  1. What does the company make of low growth in the tillers segment? They are operating at less than 50% utilization.
  2. Are they increasing their distribution network beyond Maharashtra and Gujarat. How is the market for their products performing outside of these markets?
  3. Have they seen any impact on sales post lowering their credit days to dealers? How will their working capital be affected going forward?
  4. What are the margins on 27 HP segment? What is the market size and who is the leader
  5. How is their JV for power weeders coming along? What are the margins and the market size?
  6. How is the competition shaping up in both the tractors and tiller segment? There are a lot pf players entering the tiller segment. Is that impacting their sales
  7. Whats the update on DBT being implemented in the states they cater to?
  8. What is 150 cr of capex being done for? What new products is the company talking about?
    9, What are the receivable days on Custom hiring centers? How are the alloted by the government?

(Shyam) #194
  1. How is their tractor business coming along, with Mahindra’s getting DE-focused a bit on the tractor space
  2. How are they planning to expand their presence pan india or spread their tentacles across india since they are still being seen as a south India based co
  3. How much of their new plant in Hosur contributing to the overall sales and revenue because there were internal accruals that were done to commission that plant
  4. Do they have the might to stave off any competition say for ex. from Honda Siel who are also into similar kind of business given Honda has the might of Honda Corp from Japan.
  5. How has De-Monetization and GST affected them, in terms of topline and bottom line growth?

(Shiv Kumar) #195

kirloskar is also launching tillers. how will it impact VST Tillers and
tractors?

any proposal to develop their land in mysore?

  • shiv kumar

(narendra) #196

I have attended VST tillers and tarctors AGM on 11/08/2017 and brief notes of the same:( there may be few mistakes and misinterpretation from my side)

*FY17 sales were impacted due to drought in southern states and delay in implementation of DBT scheme and release of subsidiary amount by states like Orissa and AP. This year monsoon is good in most states except for karnataka/tamilnadu and few parts of AP.

Tractors : Will maintain growth of 15% for the year. Growth will be lead by new models launched in fy17 . Q1 fy18 sold 2555 tractors v/s 2158 in q1fy17. Margins are lower due to more no of 18 HP tractor sold in state of Gujarat where the price is very competitive and govt has not agreed to revise price from last few years. Overall no siginificant improvement in EBITA margins (it will be around 15-16%) are expected due to increased competitiveness of industry. The response to new virat model is good
.

  • Almost 25% of total tractor sale is done through govt subsidiary. Tractor sale through govt subsidiary is slightly different from tiller sales. Company will receive full money from farmer.

*Mahendra company “YUVA” brand tarctor in compact segment is doing well. It has impacted the market share of VST in compact segment. Trying to gain the market share by competitive pricing and better service.

  • No new model/higher HP tractor launch this year. Expect to launch higher HP tractor in FY 19.With higher HP the margins also increases.
    *Technology changes in tractors : No major changes like automation is visible in India. There is transition from sliding gear box to continuous mesh box in tractor which company is implementing already.

*Exports of tractors: tractors has to be EU homolgated. Certain models homolgation validity will expire by fy18. Applied for similar homolgation for remaining HP tarctors/models. This year VST will export around 500 tractors mostly to european union, rest to Srilanka and Nepal. Margins in this almost same as domestic sale.

Tillers: Growth will be flat or may slightly improve. Maximum sale happens through govt subsidiary. Very difficult to change the farmers mindset to buy tillers on own. Drought in southern states and delay in release of funds in Orissa/AP impacts tiller sales. Maintained significant market share of around 60%.

*Competitors include kirloskar/kubota /chinese players. kirloskar tillers are well accepted by farmers after certain modifiaction but its price is high compared to VST tillers. Chinese players will not give proper service after selling the products.New tiller launch by Honda seems to copy of Kubota.Impact of it on vst market share and farmers acceptance is yet be seen. VST have good relation with farmers and after sale service which is helping them to maintain market share.

DBT scheme: Most of the states have implemented DBT scheme .Bihar, karnataka(they follow different model) and few eastern states have not implemented. Response of farmers to DBT is satisfactory. Company has arranged retail financing for farmers. Banks and NBFC are ready to lend money to farmers for DBT scheme.

*Reducing the dependence of southern states /Gujarth/Maharastra by entering to other states. Have presence in all the states now. Presently have around 200 tractors channel partners and 230 for tiller(not sure about no). Continuing with discount for dealers even after DBT implementation to encourage for early cash deposit by dealer. Currently giving additional discount of 4.5k to dealer in karnataka on selling tiller( I could not get more clarity about this. Concall may provide more detail).

Power weeder : last year sold about 300, expect to sell 500 this year.

Custom hiring centre in karnataka : have around 79 centres to which company has sold around 150 tractors and 300 tillers in 2016-17. Other states also have chc but vst does not have business with them due to different model.

New palnt at MALUR : new plant work in progress. It will be used for new products and tillers production. Over next 2 to 3 yrs whitefield factory tiller production will be shifted in phased manner. Installing new technology machines at Malur which increase cost efficiency. Need just 60% of present manpower to run the new plant.

*Around 200 cr will be spent on new product developement/machines and palnt. New product developement typically takes about 2 to 3 years. Upgradation of existing products are done in house. New products development is outsourced.

*Trade receivable increased due to govt subsidiary scheme for tiller sales .Most of it is secured and will be received from govt. Raw material cost is increasing, discussing with various state govt for price revision. Many states have already agreed.

*GST: resulted in price increase to end customer of about 2k for tiller and 5k tractor. No impact on company margins.

*Added additional sales force/marketing persons(around 70 in no).This year may not see such increase.

*Govt has acquired 3,300 sq feet of land of company at Whitefield factory for metro project at cost of Rs 10,000/ sq.feet(just to get sense of land value at whitefield).

disclosure:recently brought shares for tracking purpose.


(narendra) #197

karnataka agriculture department has recently announced plan to open 256 custom hiring service centres(chsc) for the year 2017-18.
As per interaction with CEO of VST at AGM last year they sold around 150 tractors and 300 tilers to 79 chsc.
Considering the increase in no of chsc in this year VST mat be able to sell more. Its not mandatory for the service provider to purchase the tractor/tiller from any particular company/Govt also not going to influence the service provider to purchase from particular company .can Vst make use of this opportunity? More details about CHSC can b found in attached file. .chsc1817.pdf (1.8 MB)


(narendra) #198

August sales data of VST
Tractors segment growth continues.Tillers growth is low MoM and year to date.
Southern states receiving good rain from last few weeks should bring back tillers growth. Let’s wait for next month sales data.

b4a63f63-e276-431e-858b-58ddedddb60e.pdf (320.3 KB)


(hemtan100) #199

The main issue with VST is that tillers are degrowing and while the management is trying its best to recoup some growth in tractors, the sub 20 HP tractors are primarily driving growth.
These being low margin, the impact on bottomline is expected to remain neutral YOY.


(newrb) #200

I thought their margin on tractors was better than tillers. Has any one tracked the growth of M&M in the sub 20 HP segment? Would be good to compare.