VSt Tillers and Tractors limited


(HG) #161

Hi Jana,

I have been a silent reader of your high quality blog. Looking forward to your participation on this high quality forum :grinning:


(Jana) #162

Thanks. As a newbie investor, I am looking forward to learn a lot from you all. I am an LKG in agriculture equipment business. So I might not be able to answer your question.

My reading on John Deere tells me that margins are high in big equipment business. And it’s hard to maintain a decent margin on smaller equipments. And I’m surprised that VST Tillers is able to do that in tillers. And it will be interesting to see what happens in the tractors business with big players like M & M entering.

Regards,
Jana


(Jana) #163

Thanks. Looking forward to learn from this high quality group.

Regards,
Jana


(Naman) #164

VST Tillers has posted results that show recovery in volumes of both tractors and tillers after a tough FY15…needs to be monitored over the next couple of quarters, but initial signs of recovery are good -

Focusing on the quarterly numbers, tractor volumes have increased by 16% in Q1FY16 compared to Q1FY15. Tiller volumes have increased by 6% though is still lower than Q1FY14…

Management has a bullish undertone in the annual report, though needs to be monitored over the next couple of quarters (http://www.bseindia.com/bseplus/AnnualReport/531266/5312660315.pdf)

*Your Directors sincerely believe that the year 2014-15 was an aberration and the company should plan for returning to healthy growth for the current financial year. The products that your company manufactures requires a long lead time for production to match the seasonal fluctuation in demand and intimation to hundreds of vendors from whom the components are sourced. The opportunity loss during peak season is far greater than the carrying cost of inventory. This will be addressed with the new plant for Tractors in Hosur gearing up to increase the capacity utilization through the new variants that are added to the existing tractor model. The Bengaluru plant is also geared up to meet the anticipated increase in demand for power tillers.*  

Overall simplistic analysis shows that there is significant scope for improvement in revenue and profitability on existing capacity of 30,000 tillers and 36,000 tractors.

Quick maths on revenue potential and valuation -

Tillers - 30000 * 1.5L = 450 crore

Tractors - 30000 * 2.5L = 750 crore

Total revenue potential = 1200 crore (over next 3 years)

Current revenues = 550 crore

Net margins even maintained at 13% will yield = 160 crore PAT, which is roughly 180 Rs per share EPS… (net margins should be higher with higher tractor contribution and operating leverage)…Currently the Company is valued at 1300 crore market cap…

A company with zero debt, and improving balance sheet and no additional fund requirement for the next couple of years should see atleast 75% - 100% upside based on the current capacity…unless the management cannot sell its tractors…

Disclosure : Invested from lower levels


(Chetan L Chhabria) #165

I have studied this business and feel that one should give a serious thought on owning this business at the right valuation.
I had a few questions on the business and they are as below.

  1. Why is the tiller market in India only 56000 units, in spite of tillers being introduced in India in the 1970’s. In Japan the market of tillers is 6 million units and in China it is 1.9 Million units.
  2. Why is no body wanting to enter the tiller business, has it got any barriers to entry ? There are only 3 players in India. VST - 50% share, Kamco ( state government of Kerala) - 25% and Chinese imports 25%.
  3. Why is the average price of a tiller Rs 130000, is it the engine that is expensive? otherwise tiller’s body and other parts should not cost that much.
  4. 80% of land holdings in India are small, this should drive the tiller sales. Why is the tiller market in India growing at only 10-12%. Shouldn’t it be growing at a much faster rate given that land holdings in India are small and fragmented.

If I am not wrong seniors at VP had meet the management earlier and visited their hosur plant. If the seniors are looking at meeting the management again to conduct a Q&A I would like to contribute. In addition if any of members have spoken to end users, distributors or people related to the agriculture sector please post your findings.

Regards,
Chetan Chhabria


(Billu) #166
  1. The kind of places tillers would sell need to have small holdings. So places like Punjab are out. The company sells quite a few units in Maharashtra but here the land holdings seems huge. As such Kerala is also a good market. Another places where tiller markets would be huge is Bihar, Bengal, Assam etc. But there the labour cost is so low that it beats having a tiller.

  2. The industry seems only able to support that many players due to less sales.

  3. Of the three power tillers listed in company’s website, two are 600+ & one is 1000+ cc diesel engines. Compare it to motocycles (say bullets), the price seems justified, even less. Btw, the company licenses the technology from Mitsubishi.

  4. As pointed out in point 1, most small land holders :
    a. Work in their own fields
    b. Have access to cheaper labour
    c. Don’t have the wherewithal to buy tillers even with the loan & the subsidy.


(Chetan L Chhabria) #167

As per report by ICICI the no of holdings of small and marginal farmers in 2010-11 was 117.1 million. Area was 70.5 hectares, this translates into average holding of 0.6 hectare. With 11 Crore small farms 56000 units tillers is a very small number. Even if 5-6 farmers get together and share a tiller the number should be higher. Amount that the farmer needs to shell out is also 50-60K given that the tillers is subsidized. Is it the case then that
a) The tiller is not marketed properly
b) Benefits of the tiller are not explained properly to the end user
c) after sales service might be a problem, service centers need to be near the farms and they might not be there currently
One more thing that should work for a company like VST is that rural labor is getting expensive and farmers want their children to be educated to take up jobs in cities.
Given the opportunity size (no of small farms) shouldn’t the company get into a aggressive mode.

Regards,
Chetan Chhabria


(Chetan L Chhabria) #168

The company conducted concall on its Q2 results, below are the points that I have noted down.

a) Results have not been upto the mark. This is due to bad monsoons and degrowth in the tractor market
b) 6420 Tillers sold during the quarter value - 82.8 Crores, average realization at 129000; 1752 tractors sold value - 45.66 Cr, average realization 260000.
c) Operating margins not upto the mark, reason being increase in other expenses, they form 13% of sales as compared to 10% in Q2FY15
d) Company has appointed Mr Subbiah as CEO, having 34 years of experience. Worked in companies like bosch, tyco electronics and pricol.
e) Orissa is the biggest tiller market in India. However it has been a disappointment. Reasons are change in policy- state pays subsidy of 75000 which is staggered over a period. State has also adopted a lottery system, earlier for receiving subsidy they followed a first cum first serve system. As demand has increased they now use the lottery system for subsidized tillers
f) Company expects to sell 28000 tillers in FY16. States that will drive this number are karnataka, AP & TN. Company has sold 13176 tillers in H1 FY16.
g) Company expects to sell 8500 tractors in FY16. The company has sold 4000 tractors in H1 FY16.
h) Company is bringing in outside resources to the company and professionalizing it, the promoter family will be involved in the company, however they want to bring outside talent to run the day to day operations. It has also appointed a new marketing head
i) Company is going to launch two new products in the tractor segment. 25 & 30 HP tractor. One of the tractors is going to be launched in Dec next year
j) The company is in a position to produce 12000 tractors and 35000 tillers without a hassle
k) Company is going to maintain a dividend payout ratio of 20%, though they have cash on the books to the tune of 140 Cr. They want to have money for the rainy day
l) 25-50 Crore capex required in the medium term, figure will depend on the development of the new tractor
m) For the rest of the year the following states are going to contribute to tiller sales Karnataka - 6000 units, Orissa - 5000 units, North East - 3000 units and Maharashtra and Gujarat - 3000 units. In the tractor segment Maharashtra and Gujarat are going to contribute 75-80% of the sales
n) Karnataka and TN give subsidy for small tractors
o) Company spoke about direct benefit transfer scheme - the company did mention that this is good in the long term however demand will go down in the short term. Farmer has to arrange the full money while purchasing the product and company will get the money immediately, current the company receives the subsidy over a 6 month period
p) Africa is a good market for tillers, however it is flooded by chinese tillers and it is very difficult to compete with them. However the company is looking at the tractor market in Africa
q) Current market share in tiller market is > 50%, company has grown this share from 45% this inspite there being 45 brands of imported tillers in the market. In the 20-30 HP segment the company has a market share of 30% up from 27%
r) Company intends to sell about 3000 rice transplanters in the next 2-3 years
s) The company has 200 dealers, 80% of them handle both power tillers and tractors. Dealer margins >10%
t) The CEO is going to lay out a 5 year 2020 vision for the company and present it the board in the coming days, points that he mentioned were

  1. Strengthen product engineering - collaborating with partners for better technology, shortening lead time so that the product can reach the customers on time
  2. Company to have a organizational structure to support this plan
  3. Work on supply chain - company is looking to prioritize on suppliers
    u) Company is looking to get 50-50% revenue from tractor and tillers in the next two years. After that tractors will contribute the majority of the sales.

If other members have gone through the concall and want to add on points that I may have missed please do so.

Regards,
Chetan Chhabria


(Mahesh Shah) #169

Some statistics on the company :


VST Tillers Overall MarketShare for 20 Years in Indian Tillers & Tractor Market


Notes :

(1) While counting marketshare for Tractors, entire domestic tractor sales are considered rather than below 30 hp tractors.

(2) Since 1998, despite many odds, company has more or less maintained 40 % + marketshare in Tillers market.

(3) Since FY04, company has steadily improved its marketshare in tractor segment.


VST Tiller Marketshare v/s KAMCO marketshare for last 10 Years


Note :

(1) From almost similar marketshares enjoyed by VST & KAMCO in FY05, whereas VST has maintained & infact improved its marketshare over last 10 years, KAMCO has seen its marketshare halve.

(2) It seems aggressiveness of other players in the market as well as import threat has more affected KAMCO than VST.


VST Tiller Realisation v/s KAMCO Tiller Realisation over last 10 Years


Note :

(1) VST has always enjoyed superior realisation for its products vis-a-vis KAMCO.

(2) Both the companies have registered gradual increase in realisation over last 10 years.

Rgds.

Discl. - Buying in VST Tillers initiated over last two weeks.Forms ~2 % of family portfolio atpresent.

Note - This is not a Buy/Sell/Hold recommendation of any kind and is just representation of statistical facts and figures. Here, Indian Tractor & Tiller industry statistics is provided alongwith marketshare of some of the major India players and should only be used as a tool for further research and not otherwise.


(Vishnu Ch) #170

CONFERENCE CALL - from Capital Markets

VST Tillers

In FY 2016 the company hopes to sell 27000 power tillers (against earlier guidance of 28000) and 7400 tractors

VST Tillers held its conference call on 10th February 2016 after it declared its results for quarter ended December 2015.
Highlights of the call:

VST Tillers had informed in Q2 that Q3 will much better.

Sales grew 42% to Rs 151.37 crore. PAT jumped 47% to Rs 17.71 crore.

The company sold 6271 tillers and 1850 tractors against 4057 tillers and 1327 tractors y-o-y.

For the nine months the company sold 19447 tillers and 5868 tractors.

Tractor market adversely affected by monsoon failure in key markets namely Gujarat and Maharashtra.

Outlook bad so FY 2016 sales growth wont meet guidance of 15%. PAT will remain flat.

In FY 2016 the company hopes to sell 27000 power tillers (against earlier guidance of 28000) and 7400 tractors.

Power tillers will grow 15% but not the tractors.

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 and tillers should grow 15%.

Karnataka state saw consistent performance. Orissa saw loss of market. Orissa is a major state for power tiller market. But the fall in Orissa market has been compensated by good growth in Andhra Pradesh.

Subsidy receivable from government sales is Rs 45 crore.

Sales break up for tractors was Rs 48.66 crore and for tillers Rs 80.77 crore

Maharashtra and Gujarat continue to account for 75-80% of 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%.

Election will have impact for 30-45 days due to model code of conduct.

Receivables were Rs 101 crore against Rs 99 crore.

Inventory was Rs 150 in December 2014 quarter. Currently it is little less.

The company did not have Bonus impact due to New Bonus Act as employees in that segment are very negligible.

Chinese market share has gone down during the current year.

Assembly capacity for tractors stands at 36000 units in 3 shift basis. The same for Tillers stands at 60000.

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.

In western Maharashtra and Gujarat the company has 70% market share.

In Orissa there are 50 brands of Chinese tiller companies.

Current net cash is Rs 150 crore.

17% margin which the company enjoys is high. The company will be happy with 15%.

The company will continue with 20% dividend payout ratio in the future


(VB) #171

Hi all, this is my first post on this forum after having discovered this site a few weeks back. Reg VST Tillers, this stock caught my eye after reading the views generously shared by members on this thread.

However found an interesting data point via google search - an article that mentions that VST Tillers has entered into transactions with former FM PC Chidambaram’s son’s Karti’s company Advantage. http://www.dailypioneer.com/todays-newspaper/raids-dig-up-empire-of-pcs-son.html

Wondering if given the Mudaliar roots, the promoters are linked to PC’s family? Any views on this would be appreciated. Thanks!


#172

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/AAFD7702_1482_4266_B344_6537C5D75810_174303.pdf

Great news for VSTT?


#173

Anything to do with a Govt cant be great news. Do yu have data to justify that VST will get their payments and subsidy in time and also recover their capital cost.


#174

That is not a statement, but a question, ends with a Q mark :slightly_smiling:

I have not looked into this and still digesting the information.

Thanks

Disclosure: I own VSTT in my portfolio


(Rohit Ojha) #175

I had studied VSTT in past. They deal with govt since many years and payments are not a big problem.

Discl: I was invested earlier but sold at 1800-1900 levels.


#176

Jana has done an excellent analysis on VST. Do you want to invest in a business where there is Govt intervention and no pricing power on its own.

There are payment problems which Company itself has admitted in its annual report.


#177

There was a huge spike in Price/Volume today…for that matter, all three Agri based stocks in my portfolio were up 6%-12%…while rest of the portfolio was lackluster.

With Monsoon risk subsiding and Argi based stock having corrected significantly in the last 3 months…the strong ones look ripe for an up move.


(Rohan_69) #178

Which are the agri stocks in your portfolio that may be might worth a look …


#179

VSTT, EPC Industries & PI Industries.


(ishandutta2007) #180

I think it Is a good time to enter stocks like VST , Escorts or Swaraj engine stocks. With two dry monsoons there is high probability third wont be so, so in general I am bullish on the sector. is Swaraj is available at PE of 25
Escorts and VST are available at PE of 20