VST Tillers and Tractors limited

@hitesh2710 Sir are you still holding on this? I havent seen your post on this for a while ?

Disc: Tracking plan to invest if it corrects to 2800

Yes, I do hold this stock.I will prefer buying on dips.To be more specific,I have learnt that one should keep on buying good stocks till it’s reasonably valued,and one should go for additional units’ buying whenever there are corrections.I will appreciate the comments of fellow members and seniors regarding the stock and the strategy.

1 Like

RESULTS AND CONACLL NOTES:

in Crs Q4FY18 Q4FY17 2018 2017
net sales 241 193 763 677
RM cost 128 90 483 429
% of sales 53 47 63 63
total expense 202 168 656 591
% sales 84 87 86 87
PBT 48 31 152 115
PBT margin 20 16 20 17
PAT 33 21 111 82
EPS( in Rs) 33 21 129 81
sales
Q4FY17 Q4FY18 FY2017 FY2018
tillers no 7766 2408 25515 30143
tractors no 2567 3574 9635 11367
revenue(in Crs) contribution Q4FY18 FY18
tillers 130 390
tractors 97 308
receivables 186 132
receivable days 88 71
ROE 15% 18%

Good results by VST. Both top line and bottom has grown decently . VST has achieved highest ever sales no in tillers and tractors. ROE has shown improvement from 15 to 18%. Receivables have increased significantly with increase in tillers sales.
Dividend of Rs. 10 + Rs .35 special dividend

CONCALL NOTES:
**Tractors:

contributed 39% of revenue. Industry to grow by 10 to 15%. VST growth should be in line with industry. May achieve higher growth in compact segment.

VST growth is around 18% while the industry in <30HP tractor segment grew by 25%. VST didn’t sell tractor for few months due to techinical issue with 27HP tractor(viraat brand)and Samraat brand tractors. These issue with engine and gear box has been resolved now and reintroduced in market.

Major revenue in tractors comes from 18.5 Hp tractors ( 70%), reaming 30% from 22 and 27 Hp TRACTORS. TN/AP/KA offers subsidy for low HP tractors

_New launche_s: 47HP Branson tractor will be launched by July/August. Around 150 tractors will be imported and sold. After 1.5 to 2yrs it will locally manufactured and sold. Only then company will expect margins from this new launch.
New 30 hp tractor will be launched by end FY19.

Challenge is to scale up higher hp tractor sales. New dealers channel has been setup in states like UP,MP,Haryana and Punjab which are traditional higher Hp tractor markets.

Exports: New EU homologation certificate has been done. In Fy18 exported 133 tractors. Exports no will doubled in FY19.

TILLERS:
Contributes around 56%of revenue. Expected to grow by 4% depending on monsoon and Govt subsidy. Industry size is roughly around 55k. VST has 60% market share.

95% of sales happen throgh subsidy Farmer gets subsidy of 40k to 1lac/tiller. Low HP tractor may cannibalize the tillers market to some extent but still lot of opportunity exists for tillers with focus on farm mechanization which is around 30% now.

VST will maintain market share in spite of new tiller launches by Greaves cotton and Kirloskar.
80% of tillers revenue comes from 12HP tillers.

VST will be launching higher 16 HP tiller in couple of months .
Chinese players have been loosing market share due to poor quality/service.

other points:
Raw materials cost has increased and margins will be impacted from next quarter. May have to increase the price by 5% to maintain the margins. Revised prices only in few states.

Employee cost has increased due to VRS of few employees and increase in bonus/variable salary of employee which is in line with sales growth.

DBT: KA/AP/Assam and NE states yet to implement DBT. All other states have implemented DBT. DBT will not affect the sales as farmers will get loan from banks/nbfc to pay upfront to dealers. Govt will pay subsidy amount directly to farmers within 10 days as seen in few states.

April 2018 sales: company has curtailed sales to manage receivables . It will get compensated by quarter/yr end.
Capex: 240 cr capex planned till 2021. Already completed capec of Rs.129Cr. In FY19 Rs.80Cr will be spent.
New plant at Malur for tillers has been started. It will be fully operational by July . Whitefield factory will be used for assembling higher HP tractors and power reapers.

Rice transplanters: Exclusive sales agreement with Korean company for importing and selling in India.

1 Like
				VST Tillers Ltd
       		      Highlights of Q4 FY18 and FY18 results

Financials

  • FY18
    o Revenues grew by 17 % to 784 Cr compare to last year
    o Without GST impact revenue grew by 17 %
     42 % comes from tractor segment or the tractor profit centre and 57% comes from the tiller profit centre,
     Actual39% of the revenue is from tractors and 50% of the revenue from tillers
    o EBITDA grew by 22 % to 119 Cr compare to last year
    o Operating profit was 107 Cr at 13.68 % of sales
    o The growth over last year is 27% with an improvement of 160 basis points
    o The PBT was 129 crores 16.44%, the growth over last year is 24% improvement of 164 basis points .
  • Q4FY18
    o Sales quantity grew by 18 % to 30,143 which was highest and 11,357 tractors which is once again the highest after the inception of VST

Q&A

  • What is the reason for April being lower in volumes and what is the outlook for volume ?
    o Outlook is quite good because
     One is prediction of normal monsoon
     Second is market is also very buoyant
     Most of the tractor manufacturers have announced that they foresee a growth of between 10% and 15%
    o In April volume were lower to control receivables and it is temporary
  • Is there any new launch in tractors and when company will be launching it ?
    o Company will be launching one new tractor by end of FY19 , probably the commercial side will happen in Q1 FY20 .
    o Company will enter into higher horsepower segment and the initial pilot batches of the 47 HP Branson tractor will start getting into market now.
  • Why company margins has not increase so much compare to margins and employee cost seem to be bit higher ?
    o The reason for margin drop in sequential quarter is because of the GST onetime benefit.
    o The employee cost was impacted due one time pay out for the voluntary retirement benefit offered for some workers.
  • Where company is seeing challenging in terms of scaling ?
    o No company is not seeing any challenges in terms of scaling but company may see challenges in terms of launching the higher horsepower tractor which company have not been playing , but company is also appointing new channels in such states where the higher horsepower requirements are very high like Uttar Pradesh and Madhya Pradesh and company is confident with good dealers coming on board company will not have any issues in increasing the tractor numbers.
  • In tractors, kindly provide the mix in FY18 how much has been old versus new States and also in terms of HP how has been the mix ?
    o In FY18 company had only sold existing range of tractors which is compact tractors and major sales comes from flagship product which is 18 HP four-wheel-drive tractors, followed by 22 horsepower and newly launched 27 horsepower tractors which is SMT model and the Virat Plus model.The ratio of 27 HP to the existing models, the revenue from 27 HP could be in the range of about 30% while other two has contributed 70% of it.
  • What factor helped in achieving the 10000 units sale numbers in tillers in Q4FY18 ?
    o There were several reasons
     Subsidy come in Q4 FY18 in States of Karnataka and Tamil Nadu so the government released lot of orders for both tractors and tillers
     Lot of major festivals fell in Q4 starting from Pongal to Gudipadwa to Ugadi in Karnataka, so all this contributed for high sales. Generally the tractor and tiller sales are linked to major festivals, so these are the factors which contributed for high sales in Q4.
  • Kindly provide update on DBT scheme in various states ?
    o DBT is yet to be implemented in Karnataka, Andhra Pradesh, Assam, and North-East, while in Andhra Pradesh have announced to start the DBT scheme this year
    o Karnataka government also committed to follow the DBT scheme
    o There is no confirmation from Assam and North-East when they will launch DBT scheme.
    o All other states have moved into full fledged DBT
  • Due to increased pressure on raw material side, so does company have taken any price increase in Q4?
    o In few states company have taken price increase for tractors and tillers, but majority of the states company have started working on it in Q1 FY19.
  • What is the one-off impact of the employee cost increase in quantify terms ?
    o It is about 1.7 Cr
    o Company sales volumes have been pretty good and the variable salary of the employees are linked to the company performance. The outflow of the annual incentives for the performance has been much higher than expected
  • Kindly provide outlook in terms of CAPEX for FY19 and FY20 ?
    o Company have outlay of around 240 Cr of CAPEX for five years until 2021 and so far company had spent 129 Cr and in FY19 company will spend about 80 Cr
  • What range of subsidy is provided on tillers and does it applicable to all states ?
    o It ranges from 40,000 up to Rs 1 lakh and it is applicable to majority of states
  • Does the subsidy is still continue in Telengana ?
    o Subsidy is still continue in Telengana , Andhra Pradesh and Karnataka . The latest entrant is Maharashtra
    o Subsidy is majorly on small tractors because the subsidy is given for agriculture, so most of the machines what is used for agriculture are the compact segment four-wheel-drive tractor.
  • Does company is looking at expanding into other states as well in terms of getting the higher HP tractor there or this is going to be own traditional strong markets ?
    o Company is going to operate PAN India and most of the channel strengthening is happening in those states where company presence has not been very, very strong.
  • Is there any strategy for North region in India ?
    o Company is expanding the channel network in Uttar Pradesh, Madhya Pradesh, Punjab, Haryana, these are the areas where company is not strong . Now with the higher horsepower tractor coming , traditionally those markets need higher horsepower tractors, so company have to increase the channel there and have good penetration strategy.
  • What is the Power tiller segment total domestic industry size and what is the company market size ?
    o In FY18 it was around 50,000 and company have maintained 60 % of total domestic market share
  • What was the absolute sales number of power tillers and tractors for the quarter as well as for full year?
    o FY18
     Tiller was 30,143 in number and in value it was 390 Cr
     Tractor s 11,367 number and value was 308 Cr
     50% and 39% is revenue share.
    o Q4FY18
     Tiller was 10,125 numbers and value was130 crores
     Tractor was 3574 numbers and value was 97 crores.
     52% and 39% is revenue share
  • Out of total sales of 30,000 how much was from Karnataka ?
    o 6000 units of tillers
    o 1000 units of tractors
  • What is the progress on the Custom Hiring Centres that company had initiated ?
    o Centres are operational which is being handled by VST. The CHC and it is more of helping the small farmers who cannot afford to buy either a tiller or a tractor, so that these equipment are available to him at a Government fixed hourly rate. It is also a platform for company to develop it business because once farmer use the Tiller then it motivate farmer to own its own tiller or tractor.
    o Farmers are happy from this rental activity because in season if if they do not have a tiller or a tractor, they can always hire these from the Custom Hiring Centres and use them, so the response has been positive from the farmers during the season. If the rainfall is good then definitely the demand for getting these on rental is very good.
  • What proportion of total book in investment is from equity investment ?
    o 63 Crore equity y-based investments and 141 crores is the mutual funds
    o In equity Rane is the major holding with 1,25,000 shares
  • Does the new tiller plant has been set up at Whitefield Road and does production moved there ?
    o Company Malur plant will be fully operational by july . Currently company is partially manufacturing tillers in Whitefield plant and partially in Malur, till such time entire process improvement and the productivity is achieved . In Whitefield company embarked its higher horsepower tractor project
    o Currently company is assembling the Higher Horsepower tractors and power reapers
  • Is there any attraction on company rice Transplanter business ?
    o Company had found a partner there for walk behind , discussions are going on and coming out with a mutual sales agreement .
    o From the Entity company will get the CKD items from China and Korea then they assemble and give to company . So company will do marketing of products. It is an Korean entity
  • What is the outlook on industry for next 5-10 years , because currently the sales has been push by government subsidies ?
    o The tiller addresses marginal segment farmers. In India today, 62% of the population depend on agriculture and out of that 62% population which depend on agriculture, 80% are marginal farmer. Marginal farmer own less than One Hectare of land the tillers are used mostly by these marginal farmers and penetration of mechanisation in the country is still at very low level of just 35%, so there is an opportunity for company to grow by another 60% in the long run, which means that the tiller market is going to remain.
    o Government initiative will remain for longer run because 62 % of population still depend on agriculture.
  • Will the low HP tractors will replace the tillers because handling of the tiller is bit difficult compared to a tractor handling and all, so that could be a risk going ahead for the tiller segment ?
    o The price difference between the tiller and tractor is substantial a marginal farmer will not be able to mobilise so much of finance for a tractor compared to a tiller and in tiller since there is subsidy, he is able to pay his contribution or his portion of the money and take posession of a tiller, yes to a certain segment the compact segment tractors may cannibalise tillers, but it will not totally cannibalise this, may be to the extent of 10% to 15% it might eat into the tiller market, but only 35% penetration has happened, so it does not matter because tiller volumes will continue because the mechanisation has to happen to mitigate the high level
  • What is the company strength among other competitors in the market and how will company gain the market share ?
    o In terms of quality , cost and service company fall in top first or second place so with this it will not be difficult to gain the market share
  • How does competition in the market change from last three to five years ?
    o The Chinese product are still available in the market. Company have to be top in terms of quality , service and support. In the last two years company is gaining the market share by 1 yoy and Chinese is losing. So that only show that the demand for desi products are much higher then Chinese products
  • How much would be the current market share with Chinese companies ?
    o There are at least 20-25 companies or agents selling the Chinese tiller , all put together is around 20 %
    o This has come down to 30-40 % from last three to four years
  • What is the market share of 12HP ?
    o 12 HP contributes to 75 % of market.
    o Company is not playing in the higher HP segment which is greater than 15 HP. Company will be launching 16 Horsepower tiller in the next couple of months so company will also get into that segment and with that company will have entire product portfolio in the tiller product family starting from power weeder or rotary tiller up to 16 Horsepower tiller.
  • What could be the price differential between a 12 HP and 16 HP roughly?
    o It should be around 10-15000
  • How much of sales should be happening through DBT and how much has already to DBT model ?
    o 95 % of annual sales volumes is through subsidy. Only 3 states are not yet in DBT which are Karnataka, AP and Assam
  • Is there is probably an impediment to probably buy a tiller?
    o IS company able to get them financing from a public sector bank or through NBFC because the Government reimburses the subsidy to the farmer within less than 10 days.
  • What has changed the second half primarily for the strong growth and what expectation can be there for next year ?
    o The Quarter-4 sales was very strong because lot of the government allocations happened in the Quarter-3 and Quarter-4, which increased the sales of tiller. Quarter-1 and 2 was weak because in South, the South-West monsoon during the initial period was not satisfactory which did not encourage the farmers to buy the product.
  • What is the expectation for FY19 ?
    o Company will grow above the industry growth , it could be 5 to 8 % . provided monsoon is normal as indicated by the Met Department and then the Government allocation from the Centre and the State Governments will also happen as committed by them
  • As the raw material prices going up how much price will company grow to keep the margins normal ?
    o There will be a 5 % increase but it all depend on the market
  • In terms of other income of 9 Cr in Q4 , How much has been contributed from equities ?
    o It is mainly from equity as well as mutual funds and due to holdings in Rane.
  • Is the equity holdings are purely investment in nature or some strategic investment is there which company will hold for a longer time ?
    o Purely Investment
  • Is the issue of crankshaft is still behind company ?
    o Yes
  • Is there any new launch in FY19 in tractors and tillers ?
    o Company is going to launch 16 Horsepower tiller and by the end of year a 30 horsepower tractor will be launched
  • Kindly give outlook on tractor growth rate in FY19 ?
    o It will be around 10-15 %
  • What would be the price differential in tiller segment with competition, and the second was in terms of trajectory where will be tiller market share going over the next three years or five years?
    o Current company market share is 16 % and most important challenge is to retain the current market share with lot of competition in the market
  • What is the price differential between Indian and Chinese players ?
    o As far as MRP is concerned there, the price difference will be hardly anything because the prices are fixed with the Government but the landed cost of cjinese tillers is very low
  • When will company launch the new high HP tractor , the Branson One ?
    o Company is going to sell it by July or August , the first initial seeding batches it will be the 47 HP
    o Company had decided to launch at least about 100 to 150 imported tractors into the field in a phased manner, so in another 1.5 to 2 years the localised products will be coming into the market.
  • Why company has reduce the volume guidance from 14,500 units in Q3 to only 15 % for FY19 ?
    o It depend on the market conditions. . Various factors can impact the actual sales. Poor monsoon, government schemes, product acceptance etc.
  • In last quarter company has faced some issues on exports because of some re-registration in Europe, has that issue been solved?
    o he new homologation certificate has come and because of the new homologation, there are lot of new parts to be added or the parts had to be redesigned. In FY19 company will have reasonable export numbers
  • What were the exports for FY18 and guidance for FY19 ?
    o FY ‘18 was about 133 numbers of tractors, company will double it by FY19
  • What is the capacity of Malur Plant in terms of tillers and tractor growth and what is the capacity utilisation for the current fiscal ?
    o For tillers, company have a capacity to produce 60,000 tillers in two shifts but currently company operate in one shift only so capacity utilisation is 50 % . and company manufactures tractors in Hosur plants there the capacity is about 35,000 and in FY19 company will be end up by producing about 13,000 or 14,000 tractors so roughly that is also about 50%.
  • What is the complex CAPEX of 240 Cr going to be ?
    o It will be use to set up assembly line
  • In terms of crop credit how many volumes company have sold ?
    o 800-1000 numbers
  • How was crop credit volume in FY18 ?
    o 300 numbers
1 Like

VST TILLERS LTD
Earning Cocall
Q4 & FY18

  • Volume Outlook 10-15 % in Tractors

  • Launching One new tractor in FY19

  • Entering into Higher Horsepower Segment , 47HP Branson Tractor will launch now

  • Challenge is in Launching higher Horsepower tractor

  • 27HP Tractor contribute 30% of revenue while others make 70%

  • Government Subsidy is Driving the growth

  • One time impact of Employee cost was 1.7Cr

  • CAPEX plan of 240 Cr for setting up assembly lines

  • Company is going to PAN India

  • Expanding Channel network in Uttar Pradesh , Madhya Pradesh , Punjab , Haryana

  • Tilles domestic market share of company is 60 %

  • Custome Hiring Centres are Operational now

-Invested 63 Crore in Equity and 125 Cr in Mutual Funds

  • Hold 1,25,000 Shares of Rane

  • Malur Plant will be fully operational by July

  • Chinese company market share is reducing by 40% yoy and now it remained 20% only

  • Company is going to Launch 16 HP Tiller and 30 HP tractor in FY19

1 Like

Disappointing sales no from VST while other players continue to post good sales no.
With additional depreciation/overhead expenses of new plant, increase in raw materials this quarter results may not be good.

Particulars quarterly
Q1FY18 Q1FY19 %change
TILLERS 7119 5367 -24.6
TRACTORS 2555 1927 -24.6

While others are posting better results & see better future revising upward guidelines… do we really know the reason behind our company lagging behind?

I understand that it should go to other wall (Escort) but as it has significance to our industry… wish to have views of other investors after watching the interview of competitor

Notes from AGM /sidelines of AGM. (There may be mistakes from my side while noting down points.)
VST tillers & tractors:
Q1 Sales are affected due to delay in subsidy by few states (KA/AP/MH)
Tractors:
Tractors sales will improve in second half of year. Overall vst will have 10% growth in tractor in fy19.
Overall tractor industry will grow at 10 to 12%/year. Will reach around 9 lac tractors by 2021.
Vst target is to gain around 4% of market share by 2021. Our target is to sell around 30,000 tractor by 2021 from current level of 11,000.

New launches:

47HP BRANSON TRACTORS:
Cmvr approval for Branson brand 47 hp has just come. Delayed due to certain specification required by govt. We will sell 50 to 60 no of imported tractors this year starting from Q3. Royalty of 40$ per tractor sold wll be paid to Kukje ltd. Required technology transfer from Kukje ltd has been going on as planned for indigenization of 47 hp tractor.It will be priced around 8 to 9 lac almost at same level of competitors like John Deere, Escorts,Mahindra.

30 HP tractor :indigenously developed by Vst with the help of external consultant will be launched in December.

Other higher hp tractors(39,45,49HP under Viraaj brand): seeding batch will start from this month. Engine for these will be sourced from Kirloskar. With these launches range of higher hp tractor will be covered.

All these higher hp tractors will be manufactured /assembled at whitefield factory.once we put up platform for higher hp tractors it can be used for range of tractors. Hosur plant even though has capacity for 30,000 tractors, platforms/manufacturing lines are not suitable for higher HP tractors
Compact segment tractors VST facing competition by Mahindra Yuvraj ( 18.5hp) tractors.Gear box problem with existing brand have been resolved. Our viraat brand 27 hp tractor will have better sales.

Exports: last year exported 133 tractors. This year target is around 400…alraedy exported ?150 tractors(I am not sure about this no).

New dealers in UP,MP,Punjab,Haryana.it’s not easy to gain market share in these tractors traditionally using higher hp tractors from escorts,mahindra…etc. We are launching higher hp for the first time,have to see how market will reacts.

Maharashtra govt also announced subsidiary for lower hp tractors but nothing happened till now… Overall around 15% of tractor sales happens through Govt subsidy.

TILLERS:

New plant at Malur is operational. Capacity of 60,000 in two shifts.it will be fully operational by this September. It is high productive line thus requires 60% less workforce for same production.

Tillers growth will not be much in FY19. New 16 hp tiller will be launched in October.

Most of the tillers through subsidiary.Maharashtra,Karnataka and AP states are not clear with the DBT scheme and not released money which has impacted tillers sales.

Chinese competition is there. Recent recommendation by expert committee regarding fixing selling price,mandatory batch testing should help Vst tillers against imported tillers.

Kirloskar tillers are in market from last two years and slowly gaining market share.

OTHER POINTS:

Dealers total no 334. 130 are common dealers…240 tractors and 220 tiller dealers.
Changed to cash and carry model with dealers that also impacted sales no. But we wanted to reduce receivables and cut down the stock at dealer level.

CAPEX: Out of planned 250Cr. 146 Cr spent on new product development like single cylinder tractor,reapers,30 HP tractors and for new series of engines from the upcoming EURO VI norms which will come after few years but export market is already demanding those reforms.

Commodity price will impact our margins by 2 to 3% …with certain rationalisation/ price increase ultimately it may impact our margin by1%

Rice transplanters target is to sell 600 this year.
Reapers target is 700 to 800. These are indigenously developed and manufactured at Whitefield factory.

5 Likes

Thanks for the above info buddy.

Poor Q2 results came with below note.

  1. Consequent to detailed investigation by an independent agency in relation to incidence of fraud reported as part of audted accounts for the year ended 31st March,2018, committed by certain employees amounting to Rs. 3,17,82,988 ( Net of recovery of Rs. 37,00,000/- as of date), which was expensed in the earlier years, has been written back and included under other income. Recoverability of the said amount being doubtful at this stage has been provided for and included under " Other Expenses".

This is really bad on top of poor sale volumes already reflecting in Q1 & Q2 results. Seems we are ready to loose more ground for other competitors.

3 Likes

A little bit clarity on Management Guidance for H2 & reported fraud of 3.56 Cr by an employee in accounts dept. They expect SAP from next year will save them from such frauds.

1 Like

VST Tillers Ltd

Highlights of Q2 FY19 and H1 FY19 Results

Financials

  • Quarterly Results
    • Sales was down by 8.4 % in the quarter compare to last year same quarter
    • Tractor sales was down by 33 % in the quarter compare to same quarter last year
  • H1 Results
    • Sales was down by 17 % in H1 compare to last year H1.
    • Tractor sales was down by 29 % in H1 compare to H1 of last year.
    • Operating Profit in H1 declined to 8.15 % from 11.82 % last year H1

Key Highlights

  • Reason For lower Sales
    • Delay in release of subsidies allotments in states like Karnataka, Andhra Pradesh, Maharashtra and Gujarat.
    • Nonstarter of subsidy allocations for 10,000 tractors announced by Maharashtra government at the beginning of the financial year.
    • Declaration of Drought in Maharashtra and Gujarat has impacted the sales in the quarter.
  • Reason For Drop in Profitability in H1 and Q2
    • Lower sales volume reducing the contribution margins by 17 Cr.
    • Manpower cost went up by 3 Cr in H1 on account of the annual salary revisions
    • One time expenses were there like Golden Jubilee function of the Company, inauguration of the new tiller plant at Malur and expense towards channel partners conference at Macau
    • Power generation cost has increased due to increase in fuel price and the electricity board tariff as well.
    • Warranty cost in tractor increased due to product related issues in new launches, additional amount was spent towards repair and maintenance of critical machines at component plant in Mysore.
    • Provision of 3 Cr due to non-moving spare parts impacted the material cost in Quarter in addition to regularization of the commodity price increases passed on to the suppliers in the quarter
    • Provision towards CSR expenses. Distribution and freight costs were much higher in the quarter compare to preceding quarter due to the region of freight rates and additional premium freight to accommodate sales requirements of new models varies.
    • Overall tractor industry in Maharashtra declined by 10.5% in H1 while 0 to 20 HP segment declined by 39% and 21 to 30 HP declined by 6.2%. Company market share in 0 to 20 HP segment is 50% which has had a dent on the sales numbers in Maharashtra.
  • Launched higher Horse Power tractors into the market in the quarter named VST Shakti Branson 47 HP, Viraj series 39 HP, 45 HP and 49 HP V

Q&A

  • Kindly provide the revenue breakdown between n power tillers, tractors spares and for the quarter?
    • Power Tiller value is 72 Cr compare to 70 Cr in Q1 FY19
    • Tractor value is 58 Cr compare to 53 Cr in Q1 FY19
  • Does the quarter number include spares ?
    • In tractors it will be spares, in power tillers segment it will be other trading goods like RTP, Reapers and power tiller spares and other items.
  • Kindly give granular breakdown of subsidy situation three power tiller space and company progress in power tiller volumes for FY19 ?
    • Region Wise
      • In Karnataka subsidy was delayed because of new government order for the mode of payment of subsidy which was announced in September. This process has started and company expect that it will get streamlined in a few weeks where in the second half of the year and whatever volume company lost in first half in Karnataka will be made in second half .
      • In Andhra Pradesh they have gone in for online DBT wherein the subsidy gets paid to the dealer. While the government promised that the subsidy payments will get paid in less than 15 days, the reality is that whatever company supplied since July the payments are yet to come from the government to the dealer
      • In Maharashtra the subsidy has been announced in few key districts so the tillers sales have started happening now from the month of October.
      • In Gujarat the subsidies came for the second half of the year, will start from November
    • With all this things company is confident to cover the lost sales of H1 in second half of the year.
    • In tractors
      • In Karnataka the government order was released in September so company started regularizing the deliveries in Karnataka
      • In Andhra Pradesh the movement is good so company expect numbers to catch up in Andhra Pradesh and second half of the year.
      • In Maharashtra it is biggest hit for the company because of compact segment 0 to 20 HP segment which is the main breadwinner for company , the industry dropped by 43%. Government has also announce subsidies scheme at the beginning of the year which was not there in Maharashtra earlier. But till date no allocation has been released for these tractors.
    • So in tractors it is difficult to catch up entire lost numbers but definitely second half company will see better numbers which will make up for the whole year.
  • What will be the volume guidance for FY19 ?
    • In power tillers company will be closer to last year numbers.
    • In tractors company will be 10-15 % lower than last year numbers.
  • What is company outlook on FY20 and how is the product pipeline looking?
    • Even in FY19 company expect good sales for the fact that company got badly hit by the nonstarter of subsidy allocations. Hoping that next year the rainfall will not play a spoilsport and the government allocations also will come on time. Company expect it will see reasonable growth. Company have enough product in pipeline so company don’t see any issue. Company has launched the higher horsepower tractors; the Branson 47 HP followed by the 39, 45 and 49 HP, the Viraj series. Company will be able to sell these products in good numbers. And the 27 HP product issues has all been resolved so company expect good sales happening in 27 HP as well. So with all these positive things happening company believe that FY20 will be good year for company.
  • In terms of new product launches for the previous Q2 what would be the number of tractors sold in the non-compact segment?
    • Company sold totally 25 tractors till date and about 6 tractors of Branson.
  • What is company plan for remaining second half of FY19 ?
    • Market demand is good and company expect to sell more than 700 tractors.
  • What is the inventory situation currently in tillers in tractors and what should be the total value of it ?
    • Company have 3047 nos. of tillers and 1503 nos. of tractors as stocks.
    • Total value is 180 Cr and FG stock value is 80 Cr
  • What are the controls company is taking toward increasing staff cost ? What will be the sustainable margins ?
    • Commodity prices has impacted overall industry. The commodity prices have gone up by almost 2.5%. That has made a major impact in margins which company has not envisaged during last year.
    • Margin come down due to volume reduction and YOY company sales top line has come down by almost 70 Cr that is because of the tiller and tractor sales both been lower on account of the subsidy related issues
    • Manpower cost is planned manpower and it is not like it has gone out of control.
    • Company is investing 250 Cr towards infrastructure and new product launches. Unfortunately the market doesn’t support company on account of drought in Maharashtra , Gujarat and non-starter of subsidies schemes in various states. The headcount additions have happened only in critical functional areas like product engineering and sales and marketing.
    • There has been some extraordinary costs in Q2 which include repair cost and spare parts cost for company official machines in Mysore which is one time which will not recur. And the freight cost has been abnormally high in Q2.
    • Lot of expenses in Q2 is one time and it will not recur in second-half of the year and with that company believe that margins will shape up better in the second half of the year.
  • How is company planning toward scale up of products ?
    • The next launch is the 30 HP product. The field trials are already in progress. Company has made couple of prototype tractors which are being validated. Company in 39, 45 and 49 HP has delivered 25 tractors which have been well accepted in the market and in that area company can see good growth once production volumes get ramp up. So greater than 30 HP segment will be another major revenue boost up for company in coming years.
  • In 30 HP what is the overall value proposition when company is selling product to farmers ?
    • It’s the brand image what company have. Most of the farmers who buy big tractors are also company customers in small tractors and d the compact tractors so they have seen value in company tractors in terms of maintenance, in terms of the service support. So there will be one type of customers who are buying company brand and other who are willing to challenge and buy company products because they have heard about company brand , price competitiveness and service support. So the value proposition is there for them in terms of price, in terms of the quality of the product, in terms of the ruggedness to the product and in terms of the performance of the product.
  • What kind of fraud of about 3 Cr is done by employees kindly brief it up ?
    • In April , CFO of the company noticed during one of the approvals for payment into the bank that certain payments going in the name of a particular employee and quite significant sum. Upon scrutiny company has found that this particular employee was working in the finance department and he used to create fictitious bills and transfer the money to his own account or to his relatives account. So in the initial finding it was observed that this employee had manipulated almost about 37 lakhs of rupees. Then forensic audit was done and then company found that financial embezzlement was almost to the extent of 3.54 Cr including this 37 lakhs. This has been provided during this quarter. Internal processes have been strengthened to ensure that such incidents to do not re-occur. Moreover by April or May of next year the new ERP system SAP S/4 HANA will get implemented and with that company will be 100 % fool proof.
  • What does other income of 13 Cr include during the quarter excluding the 3 Cr of fraud amount ?
    • Other income was 16 Cr comprises of 3 Cr towards that fraud amount which has been reversed as prior period income. Company wrote back 4 Cr marketing expenses which are no longer payable and there was a reversal of provision towards annual incentive payments to employees amounting to 2.75 Cr. Other was normal dividend income.
  • In this quarter the total one-time expense would be approximately 6 to 8 Cr?
    • Rs.1.65 Cr was provide towards CSR expenses. That won’t repeat in the second-half of the year. Another Rs.3.16 Cr is the provision towards doubtful advances that too won’t be repeating in the second half. There on Rs.5-6 Cr like this which are one-time expenditures which will not be there in the remaining part of the year
  • Does previous equity investments like Rane holding are still hold by company or exited from it ?
    • Company had 1,25,000 worth Rane holdings in that 30,000 number have been sold rest still holding by company and right now company don’t have any plan to divest it will continue.
2 Likes

eb4a8065-9992-4267-8baf-68732de3dd19.pdf (158.8 KB)
VST Tillers CEO resignation. He was upbeat on VST gaining market share in higher HP tractors in next few years and recently launched higher hp range tractors also. From last few quarters tractor sales were not good compared to other tractor players.

2 Likes

With so many farm loan waivers, shouldn’t it be good for the tractor/tiller sector in general? A friend who works in this sector says VST Tillers may be a good buy at these price. Any opinions, people?

Yes,I agree with your opinion.I think,this stock is a good buy for 3-4 year horizon,and can bring in good returns if accumulated at dips.For this stock,I got both the results favorable i.e.products being used & liked by farmers (my observations and discussions with a few farmers),and fundamental stock analysis including ratios,competitor analysis,mutual fund holding,brokerage reports etc.

2 Likes

poor sales no continues for VST:

Particulars quarterly Sale no Year to date sale no
Q3-FY18 Q3-FY19 %change UPTO Q3 -18 UPTO Q3-19 %Change
TILLERS 7003 4507 -35.6 20018 15269 -23.7
TRACTORS 2111 2063 -2.3 7793 6075 -22.0

Recently company has organised shareholders visit to new tillers factory.Few points from factory visit and interaction;

New tiller factory spread over 10 acres of land allotted by KIADB.
Manufacturing started from April. Tillers manufacturing exclusively happens here instead of Whitefield factory.
Lot of automation in each and every process, so workforce which is down to 1/3 now compared to same amount of work at old factory.
Existing employees with experience given extra salary hikes to come here from Whitefield.Some local contract workers also employed.
Total 4 engineers at plant and 62 workmen.
Dedicated area for storing components in one area and shifted to manufacturing/assembly area. Casting comes from Belgaum,Coimbatore. Existing problem with sourcing cast has resolved now.
Testing done before dispatching. Dispatch area is huge for storing.
Presently have around 3000 finished tilers as inventory against normal inventory of 500 to 1000 tillers. Market is low with lack of subsidy release from Govt. Sales expected to pick in next 3 months as state Govt"s release subsidy.
Sometimes inventory gets cleared immediate. We can not suddenly overproduce when required. Need to maintain adequate inventory.Target is to sell 27k tillers by FY end.

Capacity to produce 70k tillers per yr on two shifts. Presently doing one shift. 100 to 120 tillers per day. 3000 per month.
New 16 HP tillers is ready with sample batch. Not launched yet.

After shifting tillers manufacturing here we have outsourced some work,as its situated in industrial area with adequate services available .Eg: components painting outsourced saving 8% cost in that. Some material also outsourced.
Raw material cost was high in June but has come down now.
No replacement for CEO as of now.

2 Likes

Also, the promoter is buying continuously for past 1 week from open market.

Does anyone have any idea about the release of subsidy in Maharashtra, Karnataka and Andhra Pradesh or where one can get that info?

Management during the Q2 call had mentioned that the situation would get resolved in 2HFY19 but the Q3 numbers are still down. Power tillers down 36% y/y while tractors are down only 2%.

Thanks in advance!

Promoter has bought 19901 shares from open market valued approx 3.15 Cr. It shows the confidence of promoter despite slow down in sales. The sales are southward for the sector itself as even leaders are struggling, could be the right time for long term investors to get in for very long term.

Promoter holding has increased from 20.9% to 21.24% now

1 Like

reviving this thread with few queries -

  • despite lower level of mechanization in agri space in India, why is growth of tillers elusive?

  • any ground level feedback of higher HP launches in tractors?

  • does VST have capability to be a successful company in higher HP category where big players dominate?

Supporting answers will be helpful, thanks.

best - rajat

1 Like