9 JUNE 2016
RE-INITIATING COVERAGE I SECTOR: AUTOMOBILES
VST Tillers Tractors
BSE SENSEX
26764
S&P CNX
8203
(INR CRORES)
CMP: INR1875 TP: INR2250 (+20%)
Buy
Y/E MARCH
Revenue
EBITDA
EBITDA Margin
NP (Adj.)
EPS (Adj.)
EPS Growth
BV/share
Core ROE (%)
Core ROCE (%)
P/E (x)
P/BV (x)
Div yld (%)
FY16
645
113
17.5%
74
85.8
7%
486
19
23
21.9
3.9
0.9
FY17E
731
126
17.2%
88
102.1
19%
565
19
23
18.4
3.3
1.1
FY18E
834
141
16.9%
102
118.1
16%
655
19
22
15.9
2.9
1.3
We recommend to BUY VST Tillers Tractors for a target of
INR 2,250 - 19.0x on FY18E EPS (+20% Upside)
Market leader in power tillers:
Fragmented land holdings of
farmers in India has opened up huge opportunity for power tillers as a
power tiller costs ~INR 1.25 lakh vs INR 2.5-8 lakh for a tractor.
Given government's thrust on increasing farm productivity through
greater penetration of farm mechanization, power tillers may turn out
to be the preferred farm equipment by choice for domestic farmers.
VST being the market leader in Tillers with a ~50% share is poised to
gain. Empirically, a weak year (driven by subsidy issues at state
government level) is invariably followed by a steep growth as pent up
demand builds up. Dealers opine that clarity on the subsidy scheme in
Orissa will bode well for revival of demand going forward, as is currently
being seen in case of AP/ Telangana post the impasse last year.
Tractors to add to growth:
VST has tied up with private banks to
expand footprint into other states. This initiative would address the
key constraint of retail finance in relatively lesser developed states.
VST has launched 2 new tractor models (25HP and 30HP), besides
entering into new markets. Demarcation of the marketing function
aided improvement in VST's mkt. share in the <30HP segment to
14% YTD16 from 10%-11% in the last three years through FY15.
Monsoon 2016 - forecast above normal monsoons:
The dark
clouds of rainfall deficiency (12% in 2014 & 14% in 2015) seem to be
fading away for the Indian agriculture sector with both the Indian
Meteorological Department (IMD) and Skymet forecasting above
normal rainfall in the upcoming monsoon season 2016. More
importantly, they forecast the onset of La Niña conditions at the end
of the season leading to even better monsoon prospects in 2017. IMD
forecast rainfall in Monsoon 2016 at 106% of LPA while Skymet
forecasts the same at 109% of LPA. In good monsoon years, VST
has been able to clock double digit volume growth. Hence, robust
monsoon outlook bodes well for VST.
Valuations & View:
VST is an attractive play on its debt-free status,
healthy product pipeline, continuous emphasis on market-share increase,
minimal capex requirements, healthy FCF, and superior return ratios,
and resurgence of agriculture income on the back of above normal
monsoon forecasts. We expect VST to clock sales, PAT CAGR of
13.8% & 17.3% respectively in FY16-18E. We initiate coverage with
'BUY' recommendation and target price of INR 2,250, assigning PE
of 19x on FY18E EPS (upside of 20%).
KEY FINANCIALS
Diluted Shares (cr)
Market Cap. (Rs cr)
Market Cap. (US$ m)
Past 3 yrs Sales Growth (%)
Past 3 yrs NP Growth (%)
0.9
1,622
242
2%
-5%
STOCK DATA
52-W High/Low Range (INR)
Major Shareholders (as of March 31, 2016)
Promoter
Institutions
Public & Others
Average Daily Turnover(6 months)
Volume
Value (Rs cr)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
1924/1274
54.0
18.6
27.4
4,079
0.6
-3/35/27
2/37/26
Maximum Buy Price :INR 1925
Dharmesh Kant
(dharmesh.kant@motilaloswal.com); Tel: +91 22 30896865
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

VST Tillers Tractors
Strong FCF generation over FY16-18E:
The capacity utilisation of VST in case of power tillers is ~68%
(capacity 60,000 units) and ~21% in case of tractors (capacity 36000 units). Therefore, the company has
surplus capacity and does not need any incremental capex at least in the next three to four years, going
forward. Going forward, we expect VST to generate robust free cash flows (FCF) primarily on the back of
demand recovery and minimal capex requirements.
Non backward integrated operations - for this sector, a boon, not a bane:
Though VST has a theoretical
mfg. capacity of 60,000 PT and 36,000 tractors, VST has assembly type operations, (FA turnover 3.3 times -
FY15) giving it the flexibility to scale up or scale down operations depending on market conditions. Also,
design activities for new models are being outsourced, ensuring the operating structure is not fixed cost heavy.
CONCERNS
Subdued monsoons & delay in execution of subsidy schemes:
Subdued monsoons would likely impact
farm income in turn affecting the demand for tractors and tillers. Further, any delay in execution of subsidy
schemes from various state governments would impact purchasing power of farmers.
Competition from Chinese players:
The company operates in a highly competitive segment in which
cheaper Chinese tillers pose a great threat to market share of other organized players. However, the management
believes that market share of is dropping mainly because of poor after sales service and lack of availability of
spare parts.
BACKGROUND
VST Tillers Tractors was incorporated in 1967 as a joint venture (JV) between VST Group, Mitsubishi Heavy
Industries and Mitsubishi Corporation, Japan. VST is a leading manufacturer of power tillers and tractors in
sub-compact segments (below 30hp). It currently has capacity for making 60,000 power tillers at its facility in
Bengaluru and 36,000 sub-compact tractors at its plant in Hosur, Tamil Nadu.
INR Cr.
Total Income
Expenditure
EBITDA
Other Income
Interest
Depreciation
PBT
Tax
Adj. PAT
EBITDA (%)
Tax rate (%)
4QFY15
140.9
115.3
25.7
5.6
0.5
2.8
28.1
9.1
19.0
18.3%
32%
3QFY16
151.8
125.0
26.8
2.6
0.7
3.2
25.6
7.9
17.7
17.7%
31%
4QFY16
177.3
147.9
29.5
4.7
0.7
3.2
30.3
10.8
19.5
16.7%
36%
2%
10%
30%
15%
8%
-2%
0%
18%
yoy
26%
28%
15%
qoq
17%
18%
10%
4Q FY16:
VST Tillers Tractors (VST) reported a robust Q4FY16 performance. Net sales in Q4FY16 came in at INR
176.7 crore, up 25.6% YoY.
In Q4FY16, power tiller sales volumes grew 22.4% YoY to 7,940 units while tractor sales volumes grew
20.3% YoY to 1,933 units.
EBITDA in Q4FY16 was at INR 29.5 crore, with corresponding EBITDA margins at 16.6%. PAT for the
quarter was at INR 19.5 crore.
For full year FY16, power tiller sales volume were at 27387 units, total market size of 50000 units, implying
market share of ~55%.
9 June 2016
2

VST Tillers Tractors
IVRCL: Financials and Valuation
VST Tillers Tractors Financials & Valuation
INCOME STATEMENT
Y/E MARCH
FY14
FY15
(INRCR)
FY16 FY17E FY18E
RATIOS
Y/E MARCH
FY14
FY15
FY16 FY17E FY18E
Net sales
Growth
COGS
Employee Cost
Other Expenses
EBITDA
EBITDA Margin
Depreciation
Other Income
Interest Cost
PBT
Tax
Rate
Adjusted PAT
Growth
PAT Margin
623
550
645 731
834
30% -12% 17% 13% 14%
411
357
421 480
553
36
41
45
52
58
0
0
0
0
0
119
100
113 126
141
19.1% 18.2% 17.5% 17.2% 16.9%
4
9
13
13
14
9
12
12
14
17
2
2
3
3
3
122
101
110 124
142
39
31
36
36
40
32% 31% 32.6% 29.0% 28.0%
83
70
74
88
102
73% -16%
7% 19% 16%
13.3% 12.6% 11.5% 12.1% 12.2%
Adjusted EPS (INR)
Book Value
Div Per Share
Dividend Payout
Net Debt / Equity
P/E
P/BV
Dividend Yield
ROCE
ROE
Debtor days
Inventory days
Creditor days
W.Cap cycle
96.0
361
15.0
16%
-0.1
19.6
5.2
0.8%
38%
30%
60
52
60
51
80.5
421
15.0
19%
-0.1
23.3
4.5
0.8%
24%
21%
62
63
17
108
85.8 102.1 118.1
486
565
655
17.2
20.4
23.6
20% 20% 20%
-0.1
-0.2
-0.2
21.9
3.9
0.9%
23%
19%
70
70
28
112
18.4
3.3
1.1%
23%
19%
65
64
20
109
15.9
2.9
1.3%
22%
19%
65
58
23
101
BALANCE SHEET
Y/E MARCH
FY14
FY15
(INRCR)
FY16 FY17E FY18E
CASH FLOW
(INRCR)
FY14
FY15
FY16 FY17E FY18E
Y/E MARCH
Share Capital
Reserves
Networth
9
304
312
9
355
364
0
-
5
34
402
135
2
0
100
94
18
18
0
86
316
70
247
19
402
9
411
420
0
-
5
39
463
127
3
0
80
124
28
23
1
120
376
70
306
28
463
9
479
488
0
-
5
39
531
133
2
0
86
130
79
22
0
144
460
90
370
26
531
9
557
566
0
-
5
39
609
144
2
0
98
149
101
25
0
173
545
107
438
26
610
Minority interest
0
Loans
-
Less Net Def. Tax Liab
4
Less other long term liability 28
SOURCES OF FUNDS
345
Net Fixed Assets
124
Capital WIP
0
Goodwill
0
Inventories
87
Debtors
102
Cash & Investments
23
Loans & Advances
25
Other Curr Assets
0
Current investments
102
Curr. Assets
339
Creditors and Prov.
125
Net Current Assets
214
Other LT assets
6
APPLICATION OF FUNDS 345
PBT
Adjustments
(Inc)/Dec in W.Cap
Others
Pre Tax OCF
Tax Paid
CF from Operations
(Inc)/Dec in FA
Net investments
Others
CF from Investing act.
Equity issuance
Inc/(Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
Others
CFF
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
122
-4
55
(4)
170
(39)
131
(35)
(102)
9
(128)
0
0
(1)
(15)
3
(13)
(11)
33
23
101
-1
(54)
11
57
(31)
26
(30)
16
12
(1)
0
0
(2)
(16)
(12)
(29)
(5)
23
18
110
2
(13)
0
99
(36)
63
(19)
(34)
12
(41)
0
0
(2)
(17)
8
(12)
10
18
28
124
-12
13
0
125
(36)
89
(25)
(24)
14
(35)
0
0
(3)
(21)
20
(3)
51
28
79
142
-18
(17)
0
106
(40)
67
(14)
(29)
17
(26)
0
0
(3)
(24)
8
(19)
22
79
101
9 June 2016
3

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