Hi Kiran,
Great to see the enthusiasm back! and the attention to detail. Its truly infectious!!
Thanks for the details. Saves me much time.
Let me revert back after playing some with the data points. I cant put an exact finger on it yet, buy my sense is the Management is projecting way too favourable a picture than what the data is pointing to, so far.
I want to understand this - the real picture - either way:) and the whys?
Thanks
Donald
Some observations/questions from the data/projectiions:
1. There is a declining trend in EBITDA margins - looking at last 2 years and the recent 1H performance (from 18+% to 14+%)
This tells me even if 2H turns out to be a blockbuster, EBITDA margins are likely to be less than 16% for the year
a) Please comment on what is a likely picture based on your understanding of the business/industry
b) What are the reasons for the declining trend? Increasing competition e.g. M&M 15HP tractor cannibalising some power tiller sales as well as converting 18-20BHP tractor to lower pwer tracrtors because of much lower costs,etc
c) Is it possible that the increased capacity - when it starts getting fully utilised - will lead to higher efficiencies - so operating margins may inch up? Where do you see margins stabilising at - for next 2-3 years?
|
VST Tillers |
2007 |
2008 |
2009 |
2010 |
2011 |
5yr CAGR |
1QFY12 |
2QFY12 |
2012E |
2013E |
2014E |
4yr CAGRE |
|
Sales Growth |
16.21% |
45.37% |
25.46% |
23.67% |
21.27% |
28.07% |
29.32% |
30.00% |
30.00% |
|||
|
Net Sales |
162.28 |
188.58 |
274.13 |
343.92 |
425.31 |
27.24% |
113.18 |
136.97 |
550.00 |
715.00 |
929.50 |
29.77% |
|
EBITDA |
22.83 |
25.68 |
47.48 |
65.06 |
74.03 |
34.19% |
18.31 |
19.33 |
85.25 |
107.25 |
139.43 |
23.49% |
|
EBITDA Margins |
14.07% |
13.62% |
17.32% |
18.92% |
17.41% |
16.18% |
14.11% |
15.50% |
15.00% |
15.00% |
||
|
Depreciation |
2.73 |
2.89 |
2.81 |
2.59 |
2.27 |
0.96 |
0.91 |
3.69 |
4.80 |
6.24 |
||
|
Depreciation/Sales |
1.68% |
1.53% |
1.03% |
0.75% |
0.53% |
0.85% |
0.66% |
0.67% |
0.67% |
0.67% |
||
|
EBIT |
20.10 |
22.79 |
44.67 |
62.47 |
71.76 |
17.35 |
18.42 |
81.56 |
102.45 |
133.19 |
||
|
Interest |
0.45 |
0.53 |
0.53 |
0.67 |
0.72 |
0.20 |
0.18 |
0.74 |
0.96 |
1.25 |
||
|
Interest/Sales |
0.28% |
0.28% |
0.19% |
0.19% |
0.17% |
0.18% |
0.13% |
0.13% |
0.13% |
0.13% |
||
|
PBT |
19.65 |
22.26 |
44.14 |
61.80 |
71.04 |
37.89% |
17.15 |
18.24 |
80.82 |
101.49 |
131.94 |
22.92% |
|
Taxes |
7.10 |
7.86 |
15.23 |
19.47 |
24.85 |
5.88 |
5.93 |
28.27 |
35.50 |
46.15 |
||
|
Tax rate |
36.13% |
35.31% |
34.50% |
31.50% |
34.98% |
34.29% |
32.51% |
34.98% |
34.98% |
34.98% |
||
|
PAT |
12.55 |
14.40 |
28.91 |
42.33 |
46.19 |
38.51% |
11.27 |
12.31 |
52.55 |
65.99 |
85.79 |
22.92% |
|
Net Margins |
7.73% |
7.64% |
10.55% |
12.31% |
10.86% |
9.96% |
8.99% |
9.55% |
9.23% |
9.23% |
||
|
# of Shares |
0.86 |
0.86 |
0.86 |
0.86 |
0.86 |
0.86 |
0.86 |
0.86 |
0.86 |
0.86 |
||
|
EPS |
14.53 |
16.67 |
33.46 |
48.99 |
53.46 |
13.04 |
14.25 |
60.82 |
76.38 |
99.29 |
22.92% |
|
|
EPS growth |
14.74% |
100.76% |
46.42% |
9.12% |
14.53% |
7.04% |
13.77% |
25.58% |
30.00% |
|||
|
P/E |
7.84 |
6.89 |
5.49 |
4.22 |
||||||||
|
P/Sales |
0.85 |
0.66 |
0.51 |
0.39 |
2. I cant see Sales touching 1000 Cr by FY14 either! even if we assume Sales growing at 30% till FY14. It will be closer to 900 Cr.
a) So what makes the Management so confident of talking about a 1000 Cr figure. From the tone of the interview it looked like the MD was hinting at 1000 Cr turnover being achievable in FY13.
b) So it looks like the company is betting on a compounding sales growth much higher than 30%? The last 5 years Sales have compounded at 27%. What are the elements in product mix and or market demand that will make this happen?
c) If increasing mix of tractors in the product mix is the only indicator of that confidence -then does that look feasible - they will have to take the might of M&M and others head on.
d) if they decide to go after increasing share that will come at a cost on the margins front. I can't see EPS compounding at much higher than 20% for the next 3 years. And that makes the business a lot less exciting for me - despite the excellent profitability and returns picture over last few years. I would say then that there are comparable businesses of similar quality that will grow much faster than VST Tillers??
Views invited! If there are very divergent views from this, please share the business/industry dynamics that will make possible a more optimistic scenario!
Rgds
Donald
with VST Tillers, the problem is not so much about demand as about capacity constraints if one were to go by the management concall post q1 fy 12 results. The vendors have not been able to match the demand from the company and hence the company is not able to grow as it should. They mention in concall that since vendors are with them since a long time, they want to keep going with them and are egging them on to increase capacity.
Regarding the investment theme, the level of mechanisation in Indian farming seems to be very low. With the govt bringing in NREGA and Food Security Bill, it seems the problems of securing farm labourers even at higher rates is going to increase. Hence there doesnt seem to be any alternative to farmers except accept the farm mechanisation concept.
Coming to small tractors space, although the market may be dominated by players like M&M, VST Tillers because of its distribution set up of the tillers business can have significant growth.
Regarding margin picture, I think the company not manage to achieve the extremely high margins shown in the past but the current margins may be maintained going forward. I think EBIDTA margins of around 15-16% and NPMs of around 8-9% looks quite possible.
The targets of management to double the sales in next 3 yrs i.e. by FY 14 do look ambitious. But with comissioning of new facilities the company may be able to notch up 25% CAGR growth.
What I have seen with this scrip is that buying it at around 6-7 PE looks like a good idea. In current scenario that level comes to around 360 to 420 levels. So I guess any dips towards levels of 350 could be a good idea.
Thanks Hitesh.
All your arguments make sense.
It becomes attractive for me, only on another 15-20% correction.
Rgds
Donald
In the AR 2011, they are mentioning about 66 cr capex for 15,000 units of tractor capacity plant.
In the interview herehttp://www.thehindu.com/business/article2701751.ece, the plan is for 100 cr capex for 30,000 units.
Not sure, which one to believe.
Such large capacity expansion might be risky given the fact that their current tractor sales (units) are at 5,000 levels. Is there enough demand to absorb this 3x(or 6x)increased supply of tractors.
I found this link. Provides some interesting data on page 29 about the breakup of tractors sales across horspepower(HP) range. Yuvraj which M&M has launched is 15 HP if I remember right. For M&M bulk of sales come from the 31-40HP and 41-50HP (around 73%). The less than 20 HP segment is not as important, but yes, the very fact that they launched a 15 HP tractor means that VST Tillers’s business just got tougher.
M&M also has a tie up with Mitsubishi for rice transplanters. Again, direct competition for M&M.
[
sorry, I meant “direct competition for VST TIllers”
http://www.slideshare.net/ekansh01/vst-tillers-tractors-ltd-nse-code-vsttillers-katalyst-wealth-alpha-recommendation Link: http://articles.economictimes.indiatimes.com/2010-02-12/news/28459900_1_largest-tractor-maker-lakh-tractors-anjanikumar-choudhari ](http://www.slideshare.net/ekansh01/vst-tillers-tractors-ltd-nse-code-vsttillers-katalyst-wealth-alpha-recommendation)
Looks like there is some slowdown in tractor production at Mahindra.
They have slowed down production.
http://www.mahindra.com/Investors/Mahindra-and-Mahindra/Resource
read investor conference call transcriptsNo Tractor Production Days a March 12
VST has run up quite a bit from 420 odd levels. Is it still a buy at these levels ?
VST Tillers has come out with a good set of numbers for q1 fy 13 considering the sentiment surrounding the sector and the stock price (at which it seems no growth or in fact de growth looks like factored in)
Putting up a table depicting the last few years results quarter wise to get a better idea about the seasonality in the stock's earnings. It seems first and third quarters are relatively weak whereas second and fourth quarter are usually good.
|
2007 |
Q1 |
Q2 |
Q3 |
Q4 |
Full year |
|
Sales |
34.57 |
40.85 |
40.73 |
46.27 |
162 |
|
np |
2.24 |
2.7 |
3.61 |
4 |
12.55 |
|
2008 |
|||||
|
Sales |
37.61 |
48 |
45 |
58 |
188 |
|
np |
2.49 |
3.44 |
3.4 |
5.06 |
14.4 |
|
2009 |
|||||
|
Sales |
59.4 |
63.8 |
69.55 |
81.5 |
274 |
|
Np |
3.85 |
6.4 |
8.13 |
10.53 |
28.91 |
|
2010 |
|||||
|
Sales |
80 |
88.8 |
71.86 |
103.76 |
344 |
|
Np |
9.72 |
10.09 |
7.51 |
15 |
42.33 |
|
2011 |
|||||
|
Sales |
93 |
107 |
95.77 |
129 |
425 |
|
Np |
9.84 |
11.5 |
10.26 |
14.59 |
46.19 |
|
2012 |
|||||
|
Sales |
113 |
137 |
123 |
155 |
528 |
|
NP |
11.27 |
12.31 |
11.83 |
14.52 |
49.93 |
|
2013 |
|||||
|
Sales |
129 |
||||
|
NP |
13.99 |
The company is going at a market cap of around 370 crores and with net cash of around 20 crores the EV comes to around 350 crores. On that the company is doing net profit of around 50 crores for fy 12. Even the company's Whitefield property is valued at close to 250-300 crores.
This looks like a value investor's choice which would salivate even Ben Graham's mouth.
Good results. We might see an upswing tomorrow. Price vs ltm earnings chart for the past 10 yrs looks very interesting and certainly price has a lot to catch up with earnings.
Rohit,
Market is in concern with poor monsoon and drought situations in the north and possibly in south india too. This should impact sales in the tillers. Though we might gain some from exports it will still be in negative mood for few quarters. I would say we will have enough buying opportunities over next quarters.I am gonna keep enough cash to deploy more into it 
Yes poor monsoon is a hangover on this stock but govt. incentives or interest rate subvention would be a big positive. Also plans to increase NREGAto 200days fo employment to rural unemployment would lead to costlier labour and morefarmers will go for technological solutions.
They had huge increase in accounts receivables as per AR. 124 cr which had doubled from previous year. Will need to see how this trends in current year.
VST tillers - Structural or credit driven growth lead by NBFCs?
I had consider this stock earlier for inclusion in my portfolio but decided not to include it as I was not able to answer to what extent growth is driven by excessive lending by NBFCs and to what extent growth is driven by structural reasons like not availability of labour in rural areas. Secondly growth in sales depend on a large extent on continued availability of subsidy and loans.
Average sales during 1998-2003 was almost flat around 72 crores (with +/- 10 variation for each year). Now I do not have growth figures in agricultural financing for 1998-2003 but financing growth was quite low during FY01-04 (I do not have exact figure, but this is what I can see from chart in ICRA report). Growth started mainly from 2004 onwards which accompanied strong increase in institutional credit. Now it could be because of the structural factors discussed in the forum earlier like unavailability of labour in rural areas or it could also be because of cheaper and substantial availability of credit. Another bit of information from ICRA which I found quite alarming is that despite the priority sector norms of RBI, agricultural credit growth in most southern states is driven by lending by NBFCs. If this is indeed the case for tillers too (I presume that despite the subsidy from govt, majority of farmers will still need loan to buy tillers), then any credit crunch with NBFCs because of defaults from farmers or whatever reason will result in substantial slowdown in sales.
VST group also has a NBFC (non-banking finance company), Gove Investments & Finance Limited, for funding its captive customers. Now we need to find out to what extent VST sales are financed by its captive unit and by outsiders .
Even Mahindra (tractor division) reported 30% CAGR in revenue and 44% CAGR in operating profits over FY05-11, VST reported 25% and 30% respectively over the same period. (Higher profit growth of Mahindra because of lower margins in FY05).
Views invitedâ
Trying to see BSE Performance Chart for the stock it is not loading.Has sale plunged so much any time earlier ? Any other information on the Q2performance?
VST Tiller has come out with bad results as expected. It was on assumption that since monsoon has failed and potential downfall in sales. But there are couple of items which is bothering to see.
Inventories have doubled from 6591(year end) to 12418(half year end).
Cash reserves has been used up,not sure where did this go in.if someone can find it,please let us know.
Since the tiller market is good for years ahead with VST Tillers moving ahead,i believe this will still hold good for long term. The management is well known and transparent enough for keeping faith for long.
Need to observe the inventories for few more quarter closely
i think in shorter term stock might be meted out some punishment post very disappointing results.
|
Tractors: November 2012 sales update: Impressive growth, but unlikely to sustain - BRICS |
|
| The festive season boosted tractor sales in Nov 2012, which saw a yoy growth after three consecutive months of decline. Industry sales were up 10.3% yoy to 51,241 units, albeit on a small base, driven by a strong growth by companies like Swaraj. Domestic sales contributed 47,309 units, up 19% yoy. India's southern and western markets, which had reported a high growth last year, have been recording a decline this year. Moreover, the North Indian market is not yet showing any signs of a pick-up in tractor sales. The performance of these regions resulted in sales of the tractor industry declining 2% in YTDFY13. Tractor manufacturers expect delayed rains to result in good Rabi crop, which will help them achieve higher sales in H2 over H1. Although the tractor industry reported an impressive growth of 10% yoy in Nov 2012, we believe it was driven mainly by the festive season and it will be very difficult for the growth to sustain. We expect tractor sales to remain under pressure and decline 3% in FY13, due to overall pressure on the agri segment and weak sentiments. The growth in industry sales for Nov 2012 was led by Swaraj, up 35% yoy to 6,406 units, and HMT, up 78% yoy, albeit on a very low base, to 270 units. John Deere was the only company to report a yoy decline in sales, down 3% yoy, apart from other very small players. Sales were up yoy by 10% for M&M, 9% for TAFE, 12% for Sonalika, 6% for Escorts and 3% for New Holland. M&M (including Swaraj) reported an impressive growth of 17% yoy. Domestic sales in Nov 2012 grew 19% yoy on a relatively low base to 47,309 units, as YTDFY13 sales remained in negative territory, down 1% to 368,937 units. Domestic sales growth was boosted by M&M (including Swaraj), up 22% yoy, TAFE (up 23% yoy) and Escorts (up 10% yoy). However, John Deere continued to a report decline (down 6% yoy) in Nov 2012 as well. Industry exports fell 40% yoy in Nov 2012. Outlook: We expect the tractor industry to remain under pressure in FY13 due to: 1) lower increase in income on account of lower rise in MSPs and 2) high finance cost. We estimate industry sales to decline 3% (563,440 units) in FY13, but grow 4% (585,978 units) in FY14. Among the tractor stocks under our coverage, we maintain Add on M&M and Reduce on Escorts. HP-wise performance in October 2012 - Sales in the below-20HP segment grew 205% yoy in October 2012, with its share in total tractor sales increasing to 2% vs. 1% in October 2011. TAFE began reporting sales in the sub-20HP segment, though VST Tillers and M&M's Yuvraj continue to enjoy a duopoly. International Tractors entered the market in August 2012, but is yet to make an impact. - Sales in the 21-30HP segment declined for the seventh consecutive month this financial year, down 52% yoy in October 2012 to 4184 units, with sales of M&M and Escorts down 82% yoy and 85% yoy respectively. - Sales in the 31-40HP segment were up 11% yoy to 33,145 units. M&M recorded a decline of 4% yoy in sales, while sales grew yoy by 44% for Escorts, 34% for John Deere and 19% for TAFE. - Sales in the 41-50HP segment grew 19% yoy in October 2012 to 24,887 units. M&M's sales in the segment recovered and were up 83% yoy. - Several companies are betting on the 51HP+ segment to drive future growth, though the executive class tractors reported a decline of 34% yoy in October 2012 to 9,849 units. |
|
| Source: Equity Bulls |
|
| Posted On: 2012-12-24 10:48:03 |
Back to tilling growth?
Q3/Fy-13 Results out…
Total Income Flat at 122.75 Cr v/s 123.01 Cr.
EBIDTA up 21.3% to 19.55 Cr from 16.12 Cr.
Net Profit up 9.2% to 12.92 Cr from 11.83 Cr.
EBIDTA margin is 15.9% v/s 11.4% (SQ-12) and 13.10% (DQ-11)
NET Profit margin is 10.5% v/s 7.4% (SQ-12) and 9.6% (DQ-11)
Total Raw material costs as a %ge to Income is 69.3% v/s 67.5% (SQ-12) and 71.6% (DQ-11)
Employee costs to Income is 5.5% v/s 8% (SQ-12) and 5.6% (DQ-11)
Other expenses to Income is 9.2% v/s 13% (SQ-12) and 9.8% (DQ-11)
Tax Rate 31.1% v/s 31.5% (SQ-12) and 27.9% (DQ-11)
Raw Material, Employee, and Other Expenses all down Y-o-Y that helped EBIDTA.
But higher Depreciation, Lower other Income, and higher interest cost and Tax all affected Net profits.
9M/Fy-13 v/s 9M/Fy-12:
Total Income Down 8.8% to 341.09 Cr from 374.19 Cr (Fy/11-12: 530.64 Cr)
EBIDTA Down 1% to 50.79 Cr from 51.32 Cr (Fy/11-12: 72.79 Cr)
Net Profit Down 5.5% to 33.48 Cr from 35.41 Cr (Fy/11-12: 49.93 Cr)
Reported 9-month EPS 39 v/s 41 (Fy/11-12: 58)
On 11/02/2013, stock on BSE Closed Flat at Rs. 360.55/-
(Result came in after market hours)
Note: Though Q3 Y-o-Y and 9-month results look flat/weak,
Q3fy13 over Q2fy13:
Sales grew almost 38%
EBIDTA grew Almost 92 AND
Net profit Almost DOUBLED with an EPS of 15 v/s 8.
At cmp ~ Rs 340, imo - VST Tiller merits a closer look. After posting dis-appointing set of nos. in Sep 12, the stock has corrected quite a bit (~40%). Though, Dec 12 results seemed promising - markets have chosen to ignore it.
At the current market cap of ~290 Crs., VST’s land holding in Whitefield bangalore valued at around 250-300 Crs. (I think Hitesh mentioned this earlier) does provide some valuation comfort.
Further, their capex on new facility for tractors should reflect in revenues at some point in FY 14.
What do the fellow investors think? Is the market right in keeping the stock price depressed to these levels?
