The price appears attractive to me too. Have been averaging from 375 levels. Only thing is we dont know when the profit growth will start coming in again. It depends on various factors falling in place like subsidy from government, rainfall etc. But yes it does appear very attractive at these levels and plan to add on every meaningful fall
Akshay
I am not sure about news,but was informed that co had stopped production in feb/march to clear the inventories.
The current market price seems to capture a good amount of negative news. If company can deliver a good last quarter there could be good gains. downside looks limited in view of valuations. disc: bought around 340 levels.
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Hitesh bhai
Any thing and everything related to agriculture is doing badly fertiliser companies etc. Kaveri could be an exception
Why buy VST and bet against fundamentals besides valuations?
Regards,
The price appears attractive to me too. Have been averaging from 375 levels. Only thing is we dont know when the profit growth will start coming in again. It depends on various factors falling in place like subsidy from government, rainfall etc. But yes it does appear very attractive at these levels and plan to add on every meaningful fall
Akshay
The levels.
**
I agree, at these prices it seems to be a good steady long term compounding option.
Infact for cos like these, its better that the problems are there in short term and we see more correction and get to buy cheaper 
The other thing to understand for this co should be - they have been growing more from tractors segment and based on their capex, it seems they aretargetinghigh growth there. So why are they doing soâŚas its a competitive area and what are the chances for their success?
Ayush
Disc: I hold
AyushâŚwith projection of even Rs.18 for March quarter they will hardly reach previous years EPS i.e Zero growth , I feel there is still some downside after results stock may be available at lower levels.
aretargetinghigh
ayush,
vst tillers mainly caters to the sub 20 HP tractors which are smaller tractors. There is a very good market for these tractors. Competition is there in form of mahindra and others but still there is enough scope for growth for most players.
the reason vst tillers entered this was that the tillers market is saturated to some extent and not likely to see too much growth. Hence the focus on smaller tractors.
I feel at some stage looking at the valuations some biggies might start getting interested in buying this one if the promoters are willing to sell out. Seems like a remote possibility though.
**
Yeah, recently I was doing some research on tractor industry and noticed that there are several players with small market shares and doing decent. Given, the background of VST in the agri space, I think they may actually do decently well in the tractor space too.
If they can successfully scale up in the tractor segment, I think the stock offers a good value at these prices.
Lets try to get more insights here.
Ayush
ayush,
vst
** players.the **
tractors.
**
Edelweiss visit note gives good insight
https://www.edelweiss.in/Research/Default.aspx?flag=2&st=7&date=1&overview=1&eqtype=15&ewcode=2531
Link: https://www.edelweiss.in/Research/Default.aspx?flag=2&st=7&date=1&overview=1&eqtype=15&ewcode=2531
Excel, could you please share the jist of it as the report is accessible to only itâs clients.
From AR
VST has come out with good set of Q1
Sales increased from 129 to 150 Cr on Q-Q
PAT increased from 14 to 18.3 Cr on Q-Q
I stay in hosur and recently saw the company and now sure how can it go for production in another month(Sept 13) while even the Completed outside is yet to be completed. Will try to visit again and confirm as its easily accessible from NH main road
I attended AGM. I was late due to heavy rains in Bangalore that evening. AGM was almost over by the time I reached. Management was very patient enough to answer investorâs queries. Pravindra, Dy MD told that they could not meet their internal targets last year due to some issues (strike) at plants of one of their component suppliers and now that has been sorted out.He expects bottom line to grow at 20% next two years at least.
I asked them about the lack of their brand visibility . He admitted that they are weak in that area and focusing on improving their brand visibility.He told that they are planning to promote their brand with help of ads. Overall my conviction level has become high after talking to the management.
@govindrajan Any update on expansion plan (hosur)?
I find VST Tillers as undervalued at these price levels (~Rs.412/-), considering the tailwinds. Wanted to check from senior investors if my thesis below is correct -
a) They would be starting manufacturing tractors starting Nov 2013 in the new facility. This should give a fillip to the earnings
b) M&Mâs statement after Q1 FY14 results âThe company increased its guidance for tractor volumes from over 6-8% to double digit volumes, while stating that higher growth rates of 15-17% were a possibility.â. Now, M&M primarily plays in > 20HP tractors. But I think tractors as such are seeing quite a good growth and < 20HP and 22HP tractors which VST specializes in, should also see a double digit growth
c) So, roughly according to my calculations, this is a 2x in 3 years kind of bet, with a reasonably high probability:
Rougly, say for FY15 (or middle of FY16),they sellTillers (30-33K) with 1.2L per tiller realizatonâŚaround 400 cr sales
and Tractors, roughly 20-25K (too aggressive?)âŚwith 2.5L per tractor realizationâŚaround 600 cr sales
So, 1000 cr sales in FY15 (or middle of FY16), with 9% net margin (conservative), will give us 90 cr profitâŚon a equity base of 0.86 cr, will give us a 104 EPS. A 10 P/E would give me a 2.5 bagger from here in 2-3 years or less (not considering the dividend yield)
d) Given that itâs an election year and subisidies have been announced by almost all state govts., and central govt. (very broad assumption that I am making, and for which I account below in a note) for the agriculture sector along with a fantastic monsoon, we should be expecting a a very good growth in tillers and tractors this year
e) At around 1000 rupees per share, it is around fairly valued and we can start selling (my optimism of course, knows no bounds)
f) Another kicker being - it is close to 500 cr market capâŚonce it crosses 500 cr, institutional investors might jump inâŚas there arenât too many agri based players with a long track record and a dividend paying history
g) Last but not the leastâŚQ2 2012 had a 6.5 cr profit. Since itâs been a great monsoon, there is little probability of slowdown in sales - and hence, even if we consider the same profit of 18 cr like 1st quarter (historically Q2 has been a good quarter except for the last year), the profit increase % would be very good.
I donât want to make it more simpler than it is (and all businesses and quarters are not linear and subject to risks), but 18 cr quarterly profit, on an annualized basis is around 72 cr profit (not counting the operational efficiencies and the revised and better product mix due to more tractors). So, we are looking at about 70-80 bucks EPS this year. At 8 P/E, we are looking at a 35-50% appreciation from these levels.
The analysis seems simplistic - and if it is not, why hasnât the market re-rated it already?
What is the insight that we have, that the market currently doesnât? I am looking for information around subsidies and which states have given/declared it and which states havenât? Karnataka had pulled out subsidies last time, have they re-instated it? Gujarat and Maharashtra are the biggest tractor markets for VST Tillers - any information on subsidies in those states?
Disc: Taken a starter position at current levels. Will build or cut the position depending on the information stream that comes through.
Hi Kiran,
Overall I agree with you on the opportunity. As per some friends who went to the AGM, the co is targeting about 15,000 tractors by FY15.
They do have a very strong base and setup. The tillers segment is expected to maintain growth of 15%.
However, one big issue is the policy framework and release of subsidy on time and this has been a pain point for them. If this issue comes up again, the PE re-rating may not happen.
Ayush
HI Kiran,
Nice report and close to pragmatic analysis on VST.
What I can see around Pune(baramati,mumbai etc) farm areas is more of Sonalika and John Deere. Found very few using VST. John Deere has their factory,marketing,registered and service centers here and hence have been able to penetrate quite well. But they dont have anything below 35hp tractors. Same goes with Mahindra who has a strong presence in and around Nasik. Wonder how will VST surpass these few players in Maharashtra. Gujarat?
I bought it sub Rs350 and it gave me good returns; would like to enter if it falls below 400 as it provides tremendous value. Although it is holding quite well even though the market is falling.
Hi,
My observation has been the same as Mokhtar on the Pune- Kolhapur stretch , there on we enter into Karnataka within an hour
John Deere is very prominent- they use old style advertising campaigns -Painting on walls near the highways & Hoardings, seen a couple of showrooms too (1 is on Ahmednagar road, when leaving Pune, also a Mahindra )
Have seen Sonalika tractor ( i think they were the smaller ones) trailers pretty often in Pune,
so far havenât seen the same with VST tractors ( at the same time, chances are i might have missed as wasnât looking for them either)
