VST - Indsec

8/3/2019 VST - Indsec

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3 Indsec Securities & Finance Ltd.

50% market share in tiller

industry

Tiller contributes ~62% of

the topline

Dominant player in low HP

tractor market.

Trators contributes ~24% of

the topline

Successful volume growth in

Rice Transplanters

Tractors: - VST is a market leader in low HP tractor segments with higher market share in Gujaratand Maharashtra markets. Considering the entire Indian tractor market of ~180000 units, VST has avery nominal share of ~2.10%. However, VST is a dominant player in low HP tractors market. Hencein our view, VST is not directly comparable with other high HP established producers like Escorts and

M&M. The company has forayed into high HP tractors as well and has already launched a pilot batchto the market. Tractor segment contributes ~24% to VSTs topline.

Rice Transplanters: - It transplants the seedling uniformly without damaging them. The planting

depth and hill-to-hill spacing can also be adjusted with it. Its automatic depth control helps in

maintaining uniform planting depth. Rice Transplanters contributed just ~3.5% to VSTs topline.However, over the last 6 years the company has successfully achieved sales growth of 858 units from

55 units. In India we believe, rice transplanters are still at concept selling stage and going forwardVST will have first mover advantage in this segment.

Revenue Compos ition:-


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MSPs have resulted into

productive investments in

farm equipments

Successful journey of VST

with increased MSP

Minimum support prices (MSPs), demand driver for farm equipments:-

Over the last 20 years, the Govt. has been increasing MSPs/Minimum Procurement Prices forfarmers, across all food and non food farm products. This mechanism helps farmers procure

predetermined prices for their produces and facilitate them with higher income. Higher realizationsalong with coordinated efforts from Central Govt., State Govts & industry players in educatingfarmers have created significant awareness amongst farmers about inherent benefits of farmmechanization & have resulted in productive investment in farm equipments like tractors, tillers et al.

In our view, MSPs mechanism will benefit farm equipment producers. VST will be the key beneficiaryin the tillers and low HP Tractors market due its dominant market share and strong dealer- network.The table below highlights the parallel and successful sales growth (volume and value) achieved by

VST vis-a-vis with the increase in the MSPs. However, during FY09 and FY10 component segment

reported decline in export sales due to global economic crises.

Particulers Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10

Paddy MSP (Rs/quintal) 560 570 580 645 850 950

Tractors Sales (In nos) 933 1249 1537 1714 2327 3758

Power Tillers Sales (In Nos) 7625 8489 10510 12174 16691 19068

Other Component Sales ( InNos)

109671 113621 173526 197884 129902 44545

VSTs Sales (Rs. in Mn.) 1103.35 1299.92 1622.79 1885.81 2741.36 3445.37


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Historic Increase in MSPs:

(Rs./ quintal)

Commodities1999-

002001-

022002-

032003-

042004-

052005-

062006-

072007-

082008-

092009-

10

Paddy 490 530 550 550 560 570 580 645 850 950

Wheat 580 620 630 630 640 650 750 1000 1080 1100

Ragi - - - - - - 540 600 915 915

Maize 415 485 490 505 525 540 540 620 840 840

Barley 430 500 505 525 540 550 565 650 660 750

Gram 1015 1200 1225 1400 1425 1435 1445 1600 1730 1760

Arhar 1105 1320 1325 1360 1390 1400 1410 1550 2000 2300

Moong 1105 1320 1335 1370 1410 1520 1520 1700 2520 2760

Urad 1105 1320 1335 1370 1410 1520 1520 1700 2520 2520

Sugarcane 56.1 62.5 74.5 73 74.5 79.5 80.25 81.18 81.18 129.84

Cotton F-414/H 777 1575 1675 1695 1725 1760 1760 1770 1800 2500 2500

Cotton H-4 750 1775 1875 1895 1925 1960 1980 1990 2030 3000 3000

Groundnut 1155 1340 1375 1400 1500 1520 1520 1550 2100 2100

Jute (TD-5) 750 810 850 860 890 910 1000 1055 1250 1375

Sunflower 1155 1185 1210 1250 1340 1500 1500 1510 2215 2215

Soyabean Black 755 795 805 840 900 900 900 910 1350 1350

Soyabean Yellow 845 885 895 930 1000 1000 1020 1050 1390 1390

Safflower 1100 1300 1305 1500 1550 1565 1565 1650 1650 1680

Toria 1065 1265 1275 1565 1665 1680 1680 1735 1735 -

Source: Economic Survey 2009-10


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Excellent after sale services

with strong dealer network

In-house assembly and

provision for spare partsfrom reliable vendors

Pragmatic strategy to nip

Chinese competition

Debt free company

VSTs Revenue and Profitability trend:-

ParticulersMar-01

Mar-02

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Sales 854.8 624.4 680.7 1031.4 1103.3 1299.9 1622.8 1885.8 2741.4 3445.4

EBIDTA 126.4 57.9 76.2 127.5 133.6 153.8 228.4 256.8 474.5 649.7

PAT 64.1 17.1 41.7 57.9 57.1 74.3 125.6 144.0 289.1 423.3

EPS 11.1 3.0 7.2 10.0 9.9 12.9 21.8 25.0 50.2 49.0

Strong Dealer network: - VST has pan India presence with strong dealer chain of 240 dealers formarketing of its finished products and to provide after sales services. VST provides excellent after sale

services by ensuring delivery of its spare parts within 48 hours.

Edge over competitors and better competing strategy: - VST enjoys an edge over its domestic andChinese competitors in tiller markets, due to in-house assembly and procurement for spare parts from

reliable vendors. In contrast, Chinese players, despite their low sale-price have not succeeded in theIndian tiller markets. The primary reason being the disconnection between the original equipment

suppliers and spare parts suppliers in Chinese market. Hence, Chinese players are unable toprovide timely and efficient after sales services making it comparatively expensive and in turnhelping VST to surmount competition.

VST also trades in Chinese tillers under its Dragon Shakti brand. We believe, VST's

move of selling cheaper Chinese tiller is a pragmatic strategy to nip the low endChinese competition in the bud and also capture the first time buyers who would

further upgrade to a high-end tiller manufactured in-house by VST.

Debt free Balance sheet: - VST is a net debt free company with cash and equivalent surplus of ~ Rs.44 mn on its balance sheet for the year ended FY10. In our view, with no major capex in the pipeline thecash level will further improve with better earnings. VST reported strong ROE of 38.65% and ROC of

38.65% for FY10.


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SWOT ANALYSIS

STRENGHTS

Industry leader in Tillers and low HP

tractor markets Strong Dealer Network

Debt free company

In-house assembly and sourcing fromreliable vendors

OPPORTUNITIES

Governments thrust on agriculture through

various subsidy schemes and credit infusion

WEAKNESSES

Tiller sales are driven by Govt. subsidysharing

THREATS

Removal or reduction of Government

subsidy

Dumping of tillers by China at

irrationally low prices.


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Q1FY11 Result Updates:-

Income Statement

Rs. in Mn Q1FY-11 Q1FY-10 Y-o-Y (% ) Q4FY-10 Q-o-Q (% )

Net Sales 933.3 798.9 16.8% 1037.6 -10.1%

Cost Of Sales 778.5 647.5 843.50

EBIDTA 154.8 151.4 2.2% 194.1 -20.2%

Other Income 7.6 7.9 -3.8% 13.9 -45.3%

Depreciation 5.5 7.1 -22.5% 5.2 5.8%Interest 1.7 1.4 21.4% 2.1 -19.0%

EBT 155.2 150.8 2.9% 200.7 -22.7%

Tax 56.8 53.9 50.6

EAT 98.4 96.9 1.5% 150.1 -34.4%

Exceptional Items 0.00 -0.40 0

Reported PAT 98.4 97.3 1.1% 150.1 -34.4%

Share Capital (FV Rs. 10) 86.4 86.4 86.4

Operating Profit Margins 17% 19% 19%

Net Profit Margins 11% 12% 14%

EPS (Annualized) 45.6 45.0 69.5

CEPS (Annualized) 48.1 48.3 71.9Effective tax rate (%) 37% 36% 25%

For Q1FY11, VST reported revenue growth of 16.8% to Rs. 933.30 mn. as compared to Rs. 798.90 mn. during the same period

last year. However, on a sequential basis, it reported decline in revenue by 10%. At EBIDTA level, it reported a growth of 2.2% to Rs. 154.8 mn. as compared to Rs. 151.4 mn. during the same period last

year, while on a Q-o-Q basis it reported a de-growth of 20.2%. In terms of PAT, VST reported a growth of 2% to Rs. 98.80 mn. as against Rs. 96.90 mn. during the same period last year and

on a sequential basis it reported a decline of 34.2%.


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Income Statement Balance SheetRs. in Mn FY 09A FY 10A FY 11P FY 12P Rs. in Mn FY 09A FY 10A FY 11P FY 12P

Net Sales 2741.4 3445.4 4616.2 5829.8 SOURCES OF FUNDS :% Growth 45% 26% 34% 26% Equity Share Capital 57.6 86.4 86.4 86.4

Preference capital 0 0 0 0Expenditure 2315.1 2823.3 3881.5 4872.2 Reserves and Surplus 863.6 1182.5 1661.2 2288.7

EBIDTA 426.2 622.0 734.6 957.6Total Shareholdersfunds

921.2 1268.9 1747.6 2375.1

% Grow th 86% 46% 18% 30% Total Debt 71.4 108.0 99.9 99.9

Other Income 48.2 27.7 26.8 38.0 Deferred Tax Liabilities 34.2 13.1 13.1 13.1

Depreciation 28.1 25.9 31.2 38.1 Total Liabilitie s 1026.8 1390.0 1860.6 2488.1

Interest 5.3 6.7 5.0 7.0 APPLICATION OF FUNDS :Gross Block 692.4 794.1 914.1 1034.1

PBT 441.4 618.0 725.3 950.5 Less. Depreciation 309.5 283.6 314.8 352.9

% Grow th 98% 40% 17% 31% Net Block 382.9 510.5 599.3 681.2

Capital WIP 3.6 17.1 17.1 17.1Provision fortax

152.3 194.7 246.5 323.1 Investments 50.0 43.5 244.0 444.0

Current AssetsPAT 289.1 423.3 478.7 627.4 Inventories 511.4 444.8 562.7 708.3% Growth 101% 47% 13% 31% Sundry Debtors 362.3 674.4 705.2 842.1

Cash & Bank Balances 187.4 149.9 233.6 403.6Exceptional

ItemsLoans & Advances 85.0 96.3 95.8 95.8

Other current assets 0 0 0 0ReportedPAT

289.1 423.3 478.7 627.4 Current Liabilities & Provisions

% Growth 101% 47% 13% 31% Current Liabilities 488.2 445.1 571.4 678.2Provisions 71.2 101.3 25.8 25.8Net Current Assets 586.8 818.9 1000.2 1345.8Miscellaneous expenses 3.5 0 0 0

Total Assets 1026.8 1390.0 1860.6 2488.1


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Cash Flow Key Ratios

Rs. in MnFY

09A

FY

10A

FY

11P

FY

12PFY 09A FY 10A FY 11P FY 12P

Cash flow from operating activities: Pro fitability Ratios

PBT 441.4 618.0 725.3 950.5 OPM (%) 15.55 18.05 15.91 16.43

GPM (%) 16.29 18.13 15.82 16.42

Add: Non-cash items NPM (%) 10.55 12.29 10.37 10.76

Depreciation 28.1 25.9 31.2 38.1 ROCE (%) 33.56 36.30 30.00 29.35

Investments/Interest/Dividend -11.1 -4.4 -26.8 -38.0 ROE (%) 36.05 38.65 31.74 30.44Interest Paid 5.3 6.7 5.0 7.0

Changes in Working Capital -135 -298 -22 -176 Valuation ratios

Tax paid -146.4 -212.4 -246.5 -323.1 P/E 10.04 10.29 9.09 6.94

Others -4.0 16.1 0.0 0.0 P/BV 3.3 3.7 2.6 1.9

EV/EBIDTA 10.1 6.9 5.9 4.5

Operating Cashflow 178.9 151.6 465.6 458.9 EV/Sales 1.6 1.3 0.9 0.7

Market cap / Sales 1.1 1.3 0.9 0.7

Cash flow from I nvesting ActivitiesPurchase/Sale of Fixed Assets -120.2 -179.3 -120.0 -120.0 Liquidity ratios

Purchase/Sale of Investments -5.1 6.1 -200.0 -200.0 Current Ratio 2.0 2.5 2.7 2.9

Interest Received 10.8 4.4 26.8 38.0 Coverage ratios

-114.5 -168.8 -293.2 -282.0 Int Coverage Ratio 68.8 83.7 133.5 124.9

Leverage ratios

Cash Flow from F inancing Activities Debt-Equity Ratio 0.08 0.09 0.06 0.04

Proceeds from borrowings -7.8 36.6 -8.1 0.0 Turnover ratios

Interest paid -5.3 -6.7 -5.0 -7.0 Asset turnover 2.7 2.5 2.5 2.3

Dividend paid -33.5 -50.3 -75.6 0.0 WCap / Sales 0.2 0.2 0.2 0.1

-46.7 -20.4 -88.7 -7.0

Per share ratios

Net Change 17.7 -37.5 83.8 169.9 EPS 50.20 48.99 55.41 72.62

Cash & Equivalent Opening 169.7 187.4 149.9 233.6 Cash EPS 55.1 52.0 59.0 77.0

Cash & Equivalent Closing 187.4 149.9 233.6 403.6 BV per share 149.3 136.9 192.3 264.9


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Power Tillers

Paddy Transplanters Tractors

Engines


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For additional information please contact:Research Team

Name Sectors Covered Contact InformationSunil Shah Director-Equities [email protected] 022- 6114 6118

Hemang Tanna I.T, Metals, Power [email protected] 022- 6114 6125Prachi Bane Cement, Real Estate, Infrastructure. & Engineering [email protected] 022- 6114 6116 Anuja Shirodkar Hotel & Tourism, Oil & Gas & Statistics [email protected] 022- 6114 6122Sahil Sheth Assistant Research Analyst [email protected] 022- 6114 6127Kiran Vora Research Associate [email protected] 022- 6114 6140Deepesh Panchawala Technicals [email protected] 022- 6114 6115

Sales TeamInstitutional Sales Contact Person Contact Information

Mumbai Maya Gandhi [email protected] 022- 6114 6117Mumbai Amit Shah [email protected] 022- 6114 6133

Branch OfficesLocation Contact Person Contact Information

Ahmedabad Sujit Shah [email protected] 079 - 26449363For additional information please contact: [email protected], or visit our web-sitewww.indsec.co.in

Indsec Securities & Finance Ltd., 215 Atrium, A Wing, Andheri Kurla Road, Chakala, Andheri (E), Mumbai 400 093.

(Phone No: 61146100)

Documents

VST - Indsec