Normal monsoon, agricultural push to aid VST Tillers Tractors' growth.

VST Tillers Tractors, a Bengaluru-based farm equipment maker, is likely to benefit from the incentive to farm mechanisation offered by various state governments and recovery in the rural economy following normal monsoon this year. 

The company earns 60% revenue by selling power tillers, 37% from tractors and the remaining from rice transplants. It commands more than 50% market share in power tillers segment in India. 

To help farmers counter shortage of farm labour and rising labour costs, several states are subsidising purchase of far m equipment.Under such schemes, farmers avail 30-40% subsidy on the price of power tillers. In addition, some of the states have introduced hiring of farm equipment to make it more viable for small farmers. The central government intends to establish two lakh customer hiring centers (CHC) in India. 

These facilities are expected to benefit VST considering its strong market presence in the tillers segment. The company sold nearly 27,000 units in FY16 with a capacity of 60,000 units. This means there is ample capacity to cater to the rising demand. In the first half of FY17, VST sold 13,707 power tillers. Analysts expect 9-11% volume growth for the next fiscal.

 The company is likely to increase the number of dealers by 3040 in FY17 from 265. It took 59 days to collect outstanding revenue from customers in the June quarter compared with 70 days in FY16. The drop was due to the introduction of cash-and-carry sales to dealers. 

The company is gradually making inroads into the tractor market in the less than 30 horsepower (HP) segment. It also plans to launch models in more than 30 horsepower category in the next few months. Its tractor sales grew by 17% in FY16 from the previous year when total tractor volume for the sector dropped by 10%. 

The combined impact of volume growth and better margin due to higher capacity utilisation is expected to result in more than 15% profit growth in the current and next fiscal year. At Friday's closing price of Rs 1,925, the stock was traded at 17 times the FY18 projected earnings. This appears to be reasonable given high free cash flow, doubledigit return ratio, debt-free balance sheet and an exposure to benefits from farm mechanisation. 
 

Source:- http://economictimes.indiatimes.com/