I and @ananth visited VST office. Few points from the interaction(there may be few mistakes while noting down)
TRACTORS:
Q1: What is market size of 47 HP tractors . How many tractors we are importing from Kukje ltd. Revenue agreement with Kukje. Selling price and expected ebita margins. Target sales no in next one or two yr after launch?
A: Total market size of 30-50hp is 6.6 lac tractors/yr. 31-40hp tractors is 2.7 lac/yr. 41-50 hp: 3.4 lac. Premium segment (47hp): 1lac(30%). We will be entering the premium niche segment of 47 HP with VST Branson brand and competing with players like John dheere/escorts…etc. VST has paid upfront(?amount) to KUKJE for technology. Royalty of 40$/tractor( approx:2.5k) sold will be paid to kukje. Waiting for CMVR approval from govt. Process is on, likely to get approval by July/Aug subsequently it will be launched.
We already imported 10 tractors. Initial phase 250 tractors will be imported completely from Korea. Target is to sell 150 tractors by end of 2018. Initially it will be loss making for the company. Subsequently in phase II all the components will be indigenised except engine and target is to sell more tractors by end of 2019. In phase two it will positive for the company. Selling price of these tractors will be much higher than present tractor price…
Q2. Kukje ltd 25 R series has 35 to 60 HP. Our agreement is only for 5025R? that means only 47 hp tractor? Not any other higher range HP tractors?
A: Agreement with kukje is for 5025R series only that means only 47 hp tractors not any other higher hp range.
Q3. After sales service is one of the important factor for farmers. How you are preparing our dealers for the same considering its new technology/imported one.
A: In order to prepare the dealers to provide after sales kukje team is visting vst and updating/sharing knowledge about new brand/technical aspects. VST team also visiting Korea to learn about the same.
Q4. Why/how did u select Kukje co. Any specific advantages.
A: Kukje was approached by VST 5 years back but things didn’t materialise then . With new CEO/management they were also looking for new markets . Finally we could reach agreement with them. We were in talks with one Japan company for the same purpose but it did not progress. Kukje Branson has good brand. They have various other agri equipements which we may launch if something materialises but nothing planned as of now.
Q5. Till what HP we have own technology to launch tractors. What are new variants of tractors we are working on presently (other than 47 HP)? Anything in pipeline for this year/next year launch.
A: VST can launch 30-40 hp tractors by own technology. Will be launching other higher hp tractors hp tractors by the end of 2018. For these higher hp we will using engine from Kirloskar. 30 hp tractor will be launched in present year. Most of these new launches will be done at NASIK. Farmers at Nasik are more demanding. You will get immediate feedback for the product. If we succeed at Nasik it will easy to do the same in other parts of country.
Q6. Low hp tractors are preferred by sugar cane/cotton farmers in Guj/Maharastra due to advantage of low width where VST has significant presence. Why we could not replicate the same in sugarcane growing areas of Karanataka/Tamil Nadu and cotton growing areas of Telangana/Andhra. How VST is growing in UP which is another important sugarcane growing area.
A: We are not only strong in Guj/Maharastra but also in AP and karnataka. UP which is a big tractor market where our presence is less . More demand from UP will come once we launch higher HP tractors. Our new dealer in UP doing well. Andhra most of tractor sales happens through govt subsidy for low HP tractors.
Q7. When all other players registered significant growth in tractors VST tractors sales have been flat during last few months in spite of significant rise in selling expenses from last year. Please let us know the reason for the same. How is our tractor sales going to be present /next quarter.
A: After launching Virat+/Samrat tractor ,received feedback from farmers about problem with gear box.(Virat is having 8+2 gear box. Samrat is single cylinder engiene competing with Mahindra yuva). VST wanted to solve this issue before pushing for sales. It took some time to solve /problem with supply chain and now started bulk supply from December. Wanted to reduce the stock/receivables from dealers which was increasing, it also impacted the sales. Guj elections also impacted the sales through subsidiary which is restarted from mid JAN. Going ahead tractor sales will improve.
Q8. This year our target to sell 11000-12000 tractors . Next two- three years how many tractors we can sell ?
A: We should be selling 11k tractors by fy18 end. Target for fy19 is to reach 14.5k . With all the new launches/higher hp tractors planned our total tractors sales will be much higher in next two-three years and our target is to gain overall market share of 3%.
Q9. Any significant progress in exporting tractors. No of tractors this yr. Expected EBITA margins?
A: Export of tractors this year is not good due to issue with EU homologation. Exported around 170-200 tractors against target of 500. In Fy19 target is to export around 500 tractors.
Q10. What is the major raw material component? % of metals/tyres/battery for total cost? impact on margins.
A: Steel constitutes major raw materials (70%),tyre cost is around 3 to 4%. Steel cost has gone up significantly. Our margins will be affected by 2 to 3%. Could not pass on the rise in cost to farmers due to stiff competition in market. Competition in low hp segment is increasing with all major players entering the compact segment.
Q11. Tractor EBITA margins as per different HP segment.
A: 22HP tractor has margin of about 18%. 18HP margins are around 14%. 47 HP after one year may reach 12-14% which can further increase with indigenisation.
TILLERS:
Q12. Last three months tillers growth is impressive (70%) but on a low base due to demon of q3fy17. If we compare with q3fy16 tiller growth will be around 12% only which is still good. expected growth rate for tillers next 1 to 3 years.
A: We should be able to sell around 28k tillers this year. Its mainly driven by Govt subsidy. With Govt supporting farm mechanisation tillers should have decent growth going ahead. Marginal farmers should be supported by various measures /by removing middle men so that they get benefit and continue with agriculture.
Q13. Any new variants in tillers launched by VST in jan ? what HP? Market size. 12HP higher selling tillers - 50000 units makes up for 90% of tillers market . Who is strong competitor for us/any new competitor in this segment.
A: VST will be launching 16 HP tillers in MAY 2018(which is delayed a bit). Market size for the same is around 5000 tillers.
Q14. Any significant change in Chine’s tillers growth after Govt mandating Batch testing/CMVR before subsidy. Measures from GOVT to promote mechanisation /tillers and comment on competitor products.
A: Govt has taken certain measures like mandatory batch testing/CMVR for tillers. Other things which is proposed by VST/ongoing discussion with Govt is to fix minimum price for the tillers and makes 2yr mandatory period. These measures should help VST . We have better quality tillers with good service to farmers.
Chinese players market share has reduced to 15% from 24%. Other players like kirloskar(14hp tiller) seems to be good and found good response from dealers/farmers. Honda seil has has rotay tillers of 5HP/7Hp but nothing much about products. Kamco, being a govt company doesn’t seems to be doing much with its 12hp/8hp tillers .Kubota tillers price is higher.
OTHERS QUESTIONS:
Q15. DBT Scheme how has it progressed. Is it really implemented in any state? Orissa this year - is it happening fast? Other states following modified DBT? Do we expect receivables to come down dramatically in next few years due to this?
A: Orissa DBT is fully implemented. Andhra DBT is in force from last 2-3 months. No others new states have implemented DBT scheme fully. With elections in next year, its difficult to tell how Govt will take decision about this. Once DBT gets fully implemented our receivables should be down by 20 days. VST has good relationships with Govt authorities to manage receivables/subsidy and price negotiation.
Q16. Are we going to stop manufacturing tillers at Whitefield over next few yrs. Management view for possible monetisation of land and progress of new plant at MALUR.
A: New plant at Malur is nearing completion and will be inaugurated in few months. Will be shifting the tillers capacity (not completely ) to new plant. Whitefield plant will be utilized for production of higher HP tractors as it requires separate line which is not possible at Hosur tractor palnt. Monetising of whitefield land is unlikely in near/medium term.
Q17. Any new launches in Agri equipment sector from VST expected? self propelled power reaper ? how big is market size vs competition ? Can any of these have significant impact on revenue?
A: Other agri equipment products include VST/MTD power weeder( US company product) which is marketed by us. FY18 will sell around 800 power weeders ( total market size may be around 5k). Weeder cost is around 82k. This is also driven by Govt subsidy. Along with reapers/ attachments of tractors and tillers the contribution to revenue should be around 10% of sales in next 3 years. We have around 50 attachments for tractors and 30 for tillers.
Q18. How many hires we have done in past two years that caused employee cost gone up ? Present dealers no (total/tractors/tillers and combined). How is the plan of expanding dealer network progressing. Main focus is to increase tractor dealers?
A: Presently have around 300 dealers . Common dealers: 130. Exclusive tractor dealers and tiller dealers 260 and 220 respectively. Target is to reach 400 dealers with majority additions being tractor dealers. Around 120 people hired in last two years for strengthening R&D and other departments. Current employee cost is around 8.5% which will come down to 7-7.5% once sales growth is acheived.
Q19. Update on CHSC tender by GOVT of Karnataka. VST getting benefitted from the same like previous tenders.
A: VST is not participating in CHSC this time as it was found to be difficult to manage/loss making for dealers. Those who has taken franchise during earlier tenders seems to be loss making during last two years.