January 07, 2014

VISIT NOTE

VST Tillers & Tractors Ltd.

Sensex: 20851 CMP: INR 710 Tractors

We met the management of VST Tillers & Tractors to understand their business model & get a sense of their strategy going ahead. VST is the market leader in the Indian power tiller industry with a strong presence in the sub-20 HP tractor & tiller segment. The management is positive on the outlook of Tractor industry & is targeting 20% sales growth for the company in FY15. The new tractor plant is undergoing trial run & is expected to commence production by February 2014. Given below are the key takeaways from the visit20% revenue growth target for FY15 VST is targeting 20% revenue growth in FY15 led by higher tractor sales (as a result of start of the new tractor capacity) & increasing farm mechanisation. The management is of the view that significantly low tractor & tiller penetration among the low landholding farmers will help companies like VST, which operate in the sub-20 HP tractor category, to grow at a higher rate in the medium term. The company is planning to launch a new tractor in the 25-30 HP category, which will also aid growth. Capex plans The company has incurred capex of INR 700 mn to set up a tractor manufacturing plant with a capacity of 36000 units. The plant is ready & is currently under trial run. The management plans to start commercial production from February 2014. The company has no other plans to enhance capacity & only maintainence capex worth INR 50-100 mn is expected to be incurred in FY15. Robust outlook on Agri-Tractor industry Tractor industry is expected to register decent growth as government's thrust on improving agricultural productivity, shortage of man power & higher efficiency while using mechanized input in farming sector is creating oppurtunities for tillers & agritractors manufacturers. Even if monsoon is sub-normal next year, abundant availability of water in reservoirs will ensure decent crop production growth. VST manufactures sub-20 HP category
Key Data
BSE Code NSE Code Bloomberg Code Reuters Code Shares Outstanding (mn) Face Value Mcap (INR bn) 52 Week H/L 2W Avg. Qty.NSE
Apr-13 Nov-13 Mar-13 May-13 Dec-13 Aug-13 Feb-13 Sep-13 Oct-13 Jun-13 Jan-13 Jul-13

tractors, on which subsidy is provided to farmers which decreases the effective cost of ownership, thereby helping the buyer to quickly recover their investment amount, as compared to higher HP tractors. Other Key Highlights (1) Currently Tillers:Tractors ratio stands at ~70:30. VST is targeting to take the ratio to 45:40 (& the rest being contributed by Rice transplanters) over the long term which is expected to aid revenue growth as realization on Tractors is 2x of Tillers. (2) The company had launched a 22HP tractor last year. To further strengthen its product portfolio, the company is developing a 25-30 HP tractor which it plans to launch in FY15. Outlook & Valuation We expect tractor industry to grow at a CAGR of 10.9% between FY13-15E. The tractor capacity addition at VST comes up at an opportune time when the agri-tractor industry is expected to do well on the back of good monsoon, government's thrust on improving agricultural productivity, shortage of man power & higher efficiency while using mechanized input in farming sector. The timely launch of subsidy schemes by state & central governments is a critical factor & any delay in initiating the subsidy program may impact the company's financials. At CMP of INR 710, the company is trading at a P/E of 5.86x its TTM earnings.
(INR mn)
531266 VSTTILLERS VSTT IN VST.BO 8.64 10 6.04 740.00/330.00 16813 2.79 0.6 Net Sales Growth (%) EBIDTAM (%) Adj. PAT Growth (%) Adj. EPS (INR) P/E (x) EV/EBIDTA Net Debt/Equity RoACE (%) RoAE (%)

Shareholding (%)
Promoters FIIs DIIs Others

Sep-13
53.85 3.33 5.43 37.39

FY10
3445 25.68% 18.14 424 46.01% 47.74 6.38 3.96 -0.03 53.37 38.9

FY11
4273 24.01% 16.44 462 9.01% 52 8.5 4.86 -0.13 47.72 31.9

FY12
5306 24.20% 13.76 499 7.88% 56.33 8.06 4.99 -0.02 38.46 27.16

FY13
4817 -9.23% 15.01 486 -2.61% 54.69 6.48 3.67 -0.13 29.2 21.68

Relative Price Performance

180 160 140 120 100 80 60

Free Float (INR Bn) Beta

VST TTL

Sensex

Prashant Biyani
prashant.biyani@spagroupindia.com Ph. No. 91 33 4011 4800 (Ext. 833)

Tractors

Financials
Income statement Year End March (INR mn) Net Sales % Growth Cost of Goods Sold Employee Cost Other Optg. Exps. Total Optg. Exps. EBIDTA (excl OI) % Growth EBITDA Margin % Dep./Amortization EBIT EBIT Margin % Interest Expense Other Income EBT Tax Expenses PAT Adjustment to PAT APAT % Growth APAT Margin % FY10 3445 25.68% 2257 200 364 2820 625 45.69% 18.14% 26 599 17.39% 10 29 618 195 423 -1 424 46.01% 12.31% FY11 4273 24.01% 2871 254 446 3570 703 12.40% 16.44% 23 680 15.91% 10 40 710 249 462 0 462 9.01% 10.82% FY12 5306 24.20% 3785 284 507 4576 730 3.96% 13.76% 32 698 13.16% 11 46 734 234 499 1 499 7.88% 9.40% FY13 4817 -9.23% 3295 281 517 4094 723 -1.03% 15.01% 34 689 14.31% 14 21 696 211 486 0 486 -2.61% 10.08% Balance Sheet Year End March (INR mn) Share Capital Reserves and Surplus Total Networth Minority Interest Secured Unsecured Total Debt Deferred Tax Liability Other Liabilities Sources of Funds Net Block CWIP Investments Current Assets Current Liabilities Net Current Assets Deferred Tax Assets Other Assets Application of Funds FY10 86 1182 1269 23 85 108 16 0 1386 504 17 44 1365 547 819 3 0 1386 FY11 86 1554 1640 0 0 0 31 15 1680 528 23 368 1536 795 741 4 17 1680 FY12 86 1963 2049 0 160 160 37 21 2260 564 62 244 2302 955 1348 5 38 2260 FY13 86 2357 2444 0 0 0 41 203 2682 767 142 42 2358 682 1676 12 44 2682

Key Ratios Year End March Per Share Data (INR) Reported EPS Adj. EPS Growth (%) CEPS DPS BVPS Return Ratios (%) RoACE RoANW RoIC Liquidity Ratios Net Debt/Equity Interest Coverage Ratio Current Ratio Quick Ratio Efficiency Ratios Asset Turnover Ratio Inventory Days Debtor Days Creditor Days Valuation Ratios P/E (x) P/BV (x) P/CEPS (x) Dividend Yield (%) EV/Net Sales (x) EV/EBIDTA (x) FY10 49 49 46.44% 51.99 7.5 146.08 53.37 38.9 36.5 (0.03) 64.71 2.12 1.68 3 47 71 45 6.22 2.09 5.86 2.46 0.75 3.96 FY11 53.46 53.46 9.10% 56.09 9 189.07 47.72 31.9 31.03 (0.13) 73.49 2.06 1.24 3 47 53 31 8.27 2.34 7.88 2.04 0.85 4.86 FY12 57.79 57.79 8.10% 61.51 9 236.4 38.46 27.16 26.18 (0.02) 68.3 1.95 1.72 3 45 85 28 7.86 1.92 7.38 1.98 0.73 4.99 FY13 56.22 56.22 -2.72% 60.11 9 282.09 29.2 21.68 20.37 (0.13) 50.73 2.5 2.24 2 63 74 15 6.3 1.26 5.89 2.54 0.57 3.67

Cash Flow Year End March (INR mn) EBT Less: Other Income/Exceptionals Add:Depreciation Add: Interest paid Direct taxes paid Change in Working Capital Cash Flow from operations (a) Change in Fixed Assets Change in CWIP Change in Investments Cash Flow from Investing (b) Change in Equity Debt Raised/(Repaid) Dividend paid Interest paid Cash Flow from Financing (c) Net Change in Cash (a+b+c) Opening Cash Closing Cash FY10 618 (29) 26 10 (216) (270) 197 (102) (14) 7 (109) 0 37 (65) (10) (38) 50 187 150 FY11 710 (40) 23 10 (234) 136 686 (45) (6) (325) (376) 0 (108) (78) (10) (196) 114 150 208 FY12 734 (46) 33 11 (229) (609) (14) (61) (39) 124 24 0 160 (78) (11) 71 82 208 206 FY13 696 (21) 34 14 (213) (206) 346 (235) (80) 202 (113) 0 (160) (78) (14) (252) (18) 206 329

Tractors

Sharad Avasthi

Dy Head - Equity Research

sharad.avasthi@spagroupindia.com

Tel.: +91-33-4011 4800

Ext.832

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