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Concerns:
The company receives majority of payment from State
Mohit Rathi
Governments as it depends on subsidy. So, there are instances of
Research Analyst delay in payments resulting in working capital crunch. Also,
change in subsidy structure could hamper prospects.
mohitrathi@spagroupindia.com
Increased competition in the domestic tiller market could affect
market share and increase component prices.
VST Tillers Tractors Ltd.
Retail Research Desk Company Note 17th August 2010
Overview:
VSTTL is a company that is poised to benefit from rising 2500
firm crop prices, we expect the company to show robust growth 1500 2007-08
in sales and profits with some margin compression due to raw 1000 2009-10
The company’s management is confident of retaining its market share in the coming year and plans to increase
awareness about its products by encouraging dealers to organise workshops for farmers. The management is also
clear on not amassing any kind of debt and wants to increase capacity on a big scale. They are confident of meeting
the demand through gradual expansion in the plants in Bangalore and Mysore. As we can see below in the chart,
the main threat is from Chinese tillers which the company partly addresses by selling its own version of a Chinese
CKD. Also, with the market becoming a bit mature, farmers prefer to spend a bit more on buying a more reliable
product with an after sales service instead of buying a cheap Chinese tiller.
Others
5%
Chinese VSTTL
30% 40%
KAMCO
25%
The company has shown tremendous growth in the past 3 years due to a small base. The Chinese supplier problem
plagued the Q1 result this year. Since that issue is sorted out, we expect the company to recover and post a 12.7%
growth in profits this year on a conservative estimate. This also takes into account the expenditure on workshops
and higher expected cost of raw materials.
Considering the good prospects going forward, we initiate a buy on this scrip at CMP Rs. 487 with a target of
Rs.641 based on a forward PE multiple of 11.5 on FY11E EPS.