Vst tillers tractors is a 100% debt free company part of VST Group of companies, a well-known century-old business house in South India. The company is a significant producer of power tillers as well as other farm equipment like as tractors, power-weeders, and agricultural implements. It also manufactures diesel engines and other precise agricultural and automotive components. It also trades in other farm equipment (mostly rice trans-planters) purchased from China.

Vst Tillers

Current market price on the date of publishing this report-: 2628 Rs

Introduction

VST Tillers Tractors was founded in the late 1960s as a joint venture by V T Velu and V T Krishnamoorthy and Mitsubishi Heavy Industries. VT Velu and his brothers, Mitsubishi Heavy Industries of Japan, and Mysore State Industrial Investment Corporation formed a joint venture (60:20:20) in 1967 to manufacture power tillers and diesel engines. Tillers were first manufactured commercially in 1970. In 1984, a new technological and financial partnership was formed with Mitsubishi Agricultural Machinery Company Limited, Japan, for the production of 18.5 horsepower (HP) four-wheel drive tractors. However, all of the aforementioned collaborations have come to an end. As of the end of March 2022, the Indian founders VT Velu Family/VST Group owned 51.89 percent of the firm, while Mitsubishi Group owned 2.93 percent.

VST Tillers was the first firm in India to develop high-horsepower direct injection technology. The firm accomplished the certification of a 12/13 HP direct injection engine for the VST 130D1 power tiller through in-house development and introduced a 19 HP engine for the Arai, Pune, and TUV Germany authorised export model MT-180D tractor.

To answer the difficulties of a changing market, VST Tillers established an export-oriented unit, VST Precision Components, in collaboration with Kinsho Mataichi, Japan.

During the year 2000, the firm pioneered the introduction of the Paddy Transplanter into Indian agriculture, and it has been tested by several states. The company is also pushing this product to boost paddy output and productivity.

Company has expanded its presence in more than 20 countries over a decade and established itself as a most preferred brand for the compact tractors. Tractors are offered under the “FIELDTRAC” name in different European Union markets that satisfy the most recent EU regulations. It has cutting-edge plants in Malur and Hosur, near Bangalore, India, as well as precision components in Mysore.

In 2019 company launched VST SHAKTI 270 MT HT.

In 2020 company Singed MOU with Zetor Tractors for Joint development of product, manufacturing and business plan for tractors with a horse power greater than 36 HP. It also Launched 171 Single Cylinder, 30 HP tractor and became the first company to introduce 30 HP in Indian tractor Industry. Other than that It launched Viraaj Facelift for Domestic Market.

VST Tillers Tractors Ltd., India entered in to Strategic alliance with Pubert India on May 12, 2020. Alliance will strengthen the VST’s focus to provide solutions for marginal farmers, This will empower farmers with affordable mechanization in a period where the costs are raising and there is huge scarcity of labour.

The firm has partnered with notable global partners such as Monarch, Pubert France, and Zetor in the export market. The firm has expanded its distributor network to include Germany, Hungary, Nepal, Bangladesh, Sri Lanka, Guinea, Tunisia, Liberia, and Congo. Through online and offline marketing initiatives, the business intends to establish the VST brand in worldwide markets. In addition, the firm intends to use social media to build its FILEDTRAC brand in Europe and expand its presence in existing and new markets.

The firm has a strong presence in Europe, with distribution in France, Germany, the Netherlands, Spain, Portugal, Poland, Romania, and Bulgaria, among others. In the more than 30 HP sector, the firm has a market share of more than 10% in France.

With a market share of around 55%, the firm is a leading participant in the Indian power tiller sector (cheap agricultural mechanisation equipment that is highly valuable for small and marginal farmers) (as of FY22). Similarly, the business holds a 10% market share in the four-wheel compact tractor sector.

Last year VST was among the most innovative companies in India, CII awarded. In fact company had the ninth position among the innovative companies so it can be said that VST will definitely continue to innovative.

VST Tillers Tractors generates more than 95% of its income in the domestic market and has a countrywide network of more than 350 active dealers to support sales and provide after-sales services.

VST Tillers had roughly 150 dealers two years ago, but that number has since climbed to 520 and Another 200 dealers are expected to join this year. For FY2022 the power tiller export was about 288 Nos and tractor export is about 1400 Nos.

Business products

Company manufactures following products

Tractors

Rice Transplanter

Rotary Tillers

VST GroTech Solutions

Hedge Trimmer

Attachments

Spares and Other parts

It also increased its foothold in the weeder category by expanding its options. It now provides power tillers ranging from 9HP to 16HP. Power weeders (5-6 HP), multi crop reapers (5 HP), and brush cutters are also available.

Precision / Auto Components

Through its ‘VST’ and ‘VST FIELDTRAC’ trademarks, the firm offers a selection of small and HHP tractors for both local and foreign markets.

New Product Launches

Strategic Alliances

Company has signed a strategic alliance with Zetor for higher horsepower tractors and is collaborating with Monarch for driver-optional electric tractors.

It has also formed a strategic agreement with the French company Pubert producing power weeders.

It has also signed a master service agreement with Zimeno to create an integrated tractor powertrain for Zimeno’s electric tractor. Previously, in March of this year, the corporation invested Rs 11 crore in Zimeno for a 2% stake. In November of this year, it invested another Rs 10 crore in Zimeno’s Series B preferred shares in order to maintain the same ownership percentage in the firm. The funds will be used for research and development of electric tractor technology.

Zimeno -: Zimeno Inc is an unlisted firm based in the United States that is working on the creation of an electric autonomous tractor. VST Tillers Tractors’ investment will aid Zimeno’s expansion and growth objectives in the Indian and Asian markets. VST Tillers Tractors has joined forces with Zimeno to assist speed up the adoption of smart electric tractors in the Indian market.

The company has also signed supply agreement with Farm Mech Taiwan and US-based MTD.

Financials

For Q4fy22

Net Sales at Rs 218.36 crore in March 2022 up 12.13% from Rs. 194.74 crore in March 2021.
Quarterly Net Profit at Rs. 22.10 crore in March 2022 up 70.92% from Rs. 12.93 crore in March 2021.
EBITDA stands at Rs. 36.58 crore in March 2022 up 65.67% from Rs. 22.08 crore in March 2021.
VST Tillers EPS has increased to Rs. 25.58 in March 2022 from Rs. 14.97 in March 2021.

For the year ended March 22

Revenue stood at Rs.853.86 Crores, which is a growth of 11.73% over the previous year. Overall EBITDA stood at at Rs.158.27 Crores which is 17.82% compared to 17.01% the previous year, which is a growth of 14.82% over the previous year.
Operational EBITDA stood at at Rs.124.18 Crores, which is 14.54% compared to previous year 12.01% which is a growth of 35.33%.
PBT stood at at Rs.132.18 Crores, which is a growth of 10.87% .
PAT stood at at Rs.99.31 Crores which is a growth of 9.41% over the previous year.

Company has in total sold 31,776 tillers of which 31,488 were in domestic and about 288 were in exports. This is compared to the previous year’s 27,318 and in tractors company has done 7991 tractors against previous year of 8835.

The quarterly numbers on power tiller in Q4, company has done 9282 power tillers against previous year 7474 and tractors it has done 1575 against previous year of 1885.

Company has made additional investments of about 30 crs into equity linked mutual fund schemes thereby taking total investments to 106 crores.

Company is generating about Rs.100 Crores of free cash flow per year and cash and cash investments is about Rs.300 Crores to Rs.350 Crores which has resulted in cash piling up on the balance sheet. So far it forms 40% of the balance sheet now to which management has commented that they are looking for new growth opportunities which could be both organic or inorganic.

For the tiller segment, the revenue for Q4 is Rs.134 Crores and for the tractors it is about Rs.62 Crores.

Capex

During FY22, company began producing precision tools at its Mysore location. The implementation business will be expanded and is projected to generate double-digit (in crore) revenue in FY23 and around Rs 100 crore over the following five years, compared to insignificant revenue in FY22.

The company intends to invest around Rs 60 crore in capital expenditure, the most of which will go toward new products and new product development.

Foray into Electric Sector

VST Zetor joint venture which will go live this year with multiple products being launched. Management is working globally to expand its presence both in Europe, Africa and this year into Latin America which should give growth.

Vst is working on range of products both in the small farm mechanism space and also the tractor space. In the tractor space both in the compact tractor competing with all the international players that is present in India. Also company is lunching these new products internationally which should add more to the growth.

Further as per the management complete electrification in the tractors is not expected to take place before 2027-2028. That is when significant volumes in thousands will start happening in India especially in the compact tractor space. And by then management expects that VST will be more than ready for the entry into the electric tractor space.

Managements Comments

VST has already created capacity for larger tractors, i.e. higher horsepower tractors, which are in high demand in the market. It intends to rapidly extend its footprint in northern markets. Its annual tractor capacity is around 36,000 units. Management aims achieve revenue of Rs 1,000 crore in the tractor sector by 2025 with aggressive development into northern regions and a series of new model releases in the higher horsepower class. Even in its tiny sector, VST Tillers Tractors has sold more 30HP tractors than 18HP tractors.

As it sees a huge market opportunity for its small tractors in Europe, the management plans to roughly increase its export income from 5-6 percent to 10 percent over the next three to four years. Its sales to Europe are increasing, and it expects to send more than 1,200 tractors to France, Germany, Spain, Portugal, Belgium, and the Netherlands in FY22. ETG (Export Trading Group) has agreed to distribute the company’s tractors, power tillers, power reapers, and diesel engines in Southern African countries such as South Africa, Namibia, Botswana, Zimbabwe, Swaziland, and Zambia.

In the last three years what management has achieved is they have moved the company out of stagnancy and pushed it into the growth momentum which management believes to continue in the coming period.

Over the next 12 months management is expecting to add more than 100 dealers in the north.

Management has presented ambitions target of achieving Rs.3000 Crores of sales by FY2025 which represents 52% cagr growth in toppling over the next 3 years period. In fact if we consider the worst case scenario and stretch the time frame by another 2 years the toppling cagr growth comes at 29% which still is a very decent growth estimate considering management sticks to its plan and achieves the target.

The market for small farm mechanisation is growing. The industry in that sector is continuing to grow at a CAGR of 20% to 25%. The company likewise expects to expand at the same or somewhat faster rate set by management. Management is aiming to increase its coverage and product offering in order to foster such growth. With the introduction of new products, the company hopes to expand its product range in small farm mechanisation (reapers, brush cutters, and weeders).

Sectorial Outlook

Mechanisation has advanced significantly over the previous decade, yet there is still significant room for improvement. In India, mechanisation levels have remained much lower than global standards, with tractors being the foundation of production. Small land holdings have been a significant barrier to further mechanisation adoption throughout the years. The scarcity of agricultural labour, exacerbated by increased urbanisation and rising labour costs, is predicted to accelerate the rate of mechanisation in the agriculture sector. We anticipate that increased mechanisation will continue to be a long-term driver of development in the agricultural machinery sector.

According to ICRA, the Indian farm machinery market would grow at an 11 percent CAGR to Rs. 1,207 billion in FY2025, owing to increased mechanisation in Indian agriculture. Affordable agricultural devices are projected to expand faster than tractors in the future. VST Tillers Tractors benefits from this trend since it has a diverse portfolio focused on particular areas.

Conclusion

VST Tillers Tractors is a completely debt free company with Cash & Equivalents as well as Non Current investments making up almost 60% of its Total balance sheet. Additionally management has laid out an ambitious plan to achieve 3000 crs revenue by 2025, which transforms into 52% cagr growth over 3 years period. VST Tillers Tractors is expected to profit from a robust rural economy and increased agricultural mechanisation. The agricultural equipment business is expected to develop rapidly in the next years, backed by high rural cash flows. COVID-19 had a negative impact on the rural economy, but it is quickly rebounding owing to the typical monsoon. Furthermore, the government’s solid actions for agriculture and the agricultural industry, a bumper kharif harvest the previous year, and rising reservoir levels have been aiding the rural economy’s recovery.

Overall, the company is expected to see strong volume growth on the back of product expansion, expansion of market reach as well as benefit of contract manufacturing. Thus considering an prudent estimate of 3000 crs topline over 5 years still gives 29% care growth which is still a decent number. That is why we feel that VST tillers tractors is worth exploring for long term.

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Vst Tillers

Introduction