1

SYNOPSIS

The VST Group diversified into manufacturing and promoted VST Tillers Tractors, in association and joint venture with the Mitsubishi Group, Japan in 1965.

Net Sales and PAT of the company are expected to grow at a CAGR of 23% and 15% over 2010 to 2013E respectively.

The main products of the Company namely Power Tillers and Tractors are used in the agricultural sector all over the India. Power Tillers and Tractors are exported to whole of Africa.

During the quarter, the company has reported Net Profit increased to Rs.123.10 million from Rs.115.00 million in previous year same quarter.

The Tractors are exported to Middle East, Russia and Turkey. The component parts are exported to Europe, Korea and Thailand.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 4253.10 740.30 461.90 53.46 8.04

FY 12E 5350.40 842.10 534.49 61.86 6.95

FY 13E 6420.48 1010.52 637.99 73.84 5.82

Stock Data:

Sector: Automobile

Face Value Rs. Rs.10.00

52 wk. High/Low (Rs.) 580.00/404.00

Volume (2 wk. Avg.) 643.00

BSE Code 531266

Market Cap (Rs.In mn) 3888.00

Share Holding Pattern

1 Year Comparative Graph

BSE SENSEX VST Tillers Tractors

Ltd

C.M.P : Rs.450.00 Target Price : Rs.518.00 Date : 19th Jan 2012 BUY

V.S.T.TILLERS TRACTORS LTD

Result Update: Q2 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

VST Tillers Tractors 450.00 3888.00 53.46 8.04 2.27 90.00

Escorts 76.35 8063.9 11.37 6.72 0.45 15.00

Tata Motors Ltd 208.80 662718.4 4.68 44.62 3.31 200.00

Eicher Motors 1533.00 41367.4 36.08 42.49 9.06 110.00

Investment Highlights

Q2 FY12 Results Update

VST Tillers Tractors Ltd disclosed results for the quarter ended Sep 2011. Net

sales for the quarter moved up 29% to Rs.1374.60 million as compared to

Rs.1069.50 million during the corresponding quarter last year. During the

quarter, the company has reported Net Profit increased to Rs.123.10 million from

Rs.115.00 million in previous year same quarter. The Basic EPS of the company

stood at Rs.14.25 for the quarter ended Sep 2011.

Quarterly Results - Standalone (Rs in mn)

As At Sep-11 Sep-10 %change

Net sales 1374.60 1069.50 29

PAT 123.10 115.00 7

Basic EPS 14.25 13.31 7

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Basic EPS of the company stood at Rs. 14.25

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Break up of Expenditure

Expenditure for the quarter stood at Rs.1193.40mn, which is around 33% higher

than the corresponding period of the previous year. Raw material cost of the

company for the quarter accounts for 74% of the sales of the company and stood

at Rs.1019.50mn from Rs.720.60mn of the corresponding period of the previous

year. Selling & Distribution Expenses cost increased 26%YoY to Rs.97.5mn from

Rs.77.10mn and accounts for 7% of the revenue of the company for the quarter.

OPM and NPM for the quarter stood at 14% and 9% respectively from 17% and

11% respectively of the same period of the last year.

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FY11 Performance

Net profit of the company has increased at 9% yoy Rs.461.90mn from

Rs.423.30mn of same period of last year. Total revenue for the year stood at

Rs.4253.10 mn from Rs.3445.40 which is 23% increased than that of a year ago.

EPS for the year stood at Rs.53.46 per equity share of Rs.10.00 each.

Operating profit of the company stood at Rs.740.30mn. OPM for the year stood at

17.41%. Expenditure of the company increased 25% YoY to Rs.3572.50 mn.

Interest expenses for the year stood at Rs.7.20mn.

Company Profile

V.S.T Tillers Tractors Ltd (VTTL) was incorporated in the year 1967 in Bangalore,

India. It was promoted by the V.S.T Group, a well known business house in South

India, in technical collaboration and joint venture with Mitsubishi Heavy Industries

and Mitsubishi Corporation, Japan for the manufacture of Power Tillers and Diesel

Engines. The plant went into production in the year 1970.

In 1984, an additional technical and financial collaboration with Mitsubishi

Agricultural Machinery Company Ltd, Japan for the manufacture of 18.5 HP, 4 wheel

drive Tractor was entered into.

The manufacturing plant is located in Whitefield Industrial area near Bangalore. It has

75,000 Sq. mtrs. of land and a built up area of 15,000 Sq. mtrs (approx). The

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Manufacturing capacity of the company presently is 25,000 Power Tillers, 32,000

Engines and 5000 Tractors. This capacity can be enhanced upto 30% within a period

of 6 to 8 months.

VTTL has in-house Design and Development section for upgrading the level of

technology in line with current requirements. It also upgrades existing products and

develops new products demanded by market from time to time. VTTL has ISO-9001

certification for Quality Management System since January 1998. VTTL follows ISO

9001-2008 Quality System requirements to satisfy all customer needs.

The main products of the Company namely Power Tillers and Tractors are used in the

agricultural sector all over the India. Power Tillers and Tractors are exported to whole

of Africa. The Tractors are also exported to Middle East, Russia and Turkey. The

component parts are exported to Europe, Korea and Thailand.

The Company has a nation-wide network of Dealers supported by Sales and Service.

This is supported by supply of spare parts, provision of service tools and equipments,

making available service information through technical literature, instruction manuals

etc., and imparting training to Dealers’ personnel as well as end users namely the

farmers, are some of the effective steps taken by the Company towards customer

satisfaction.

Products range of the company includes:

Tillers

Tractors

Diesel Engines

Different divisions of the company:

Bangalore Division -- Manufacturers of Mitsubishi Shakti Power Tillers,

Tractors and Diesel Engines

Hosur Division -- Manufacturers of Mitsubishi Shakti Power Tillers and Diesel

Engines

Precision Components Division, Mysore -- Manufacturer of Diesel Engine

components and Precision Custom made auto components

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in million) FY10A FY11A FY12E FY13E

12m 12m 12m 12m

Description

Net Sales 3445.40 4253.10 5350.40 6420.48

Other Income 27.70 59.70 71.64 85.97

Total Income 3473.10 4312.80 5422.04 6506.45

Expenditure -2848.40 -3572.50 -4579.94 -5495.93

Operating Profit 624.70 740.30 842.10 1010.52

Interest -6.70 -7.20 -7.92 -8.32

Gross Profit 618.00 733.10 834.18 1002.20

Depreciation 0.00 -22.70 -34.05 -44.27

Profit before Tax 618.00 710.40 800.13 957.94

Tax -194.70 -248.50 -265.64 -319.95

Profit after Tax 423.30 461.90 534.49 637.99

Equity Capital 86.40 86.40 86.40 86.40

Reserves 1182.40 1553.86 2088.35 2726.33

Face Value(Rs.) 10.00 10.00 10.00 10.00

Total No. of Shares 8.64 8.64 8.64 8.64

EPS 48.99 53.46 61.86 73.84

*A=Actual, *E=Estimated

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in million) 30-Mar-10 30-Jun-11 30-Sep-11 31-Dec-11

3m(A) 3m(A) 3m(A) 3m(E)

Description

Net Sales 1292.60 1131.80 1374.60 1250.89

Other Income 29.30 18.20 12.10 10.89

Total Income 1321.90 1150.00 1386.70 1261.78

Expenditure -1097.90 -966.80 -1193.40 -1069.51

Operating Profit 224.00 183.20 193.30 192.27

Interest -2.00 -2.00 -1.80 -1.90

Gross Profit 222.00 181.20 191.50 190.37

Depreciation -6.10 -9.60 -9.10 -9.28

Profit before Tax 215.90 171.60 182.40 181.09

Tax -70.00 -58.70 -59.30 -61.57

Profit after Tax 145.90 112.90 123.10 119.52

Equity Capital 86.40 86.40 86.40 86.40

Face Value(Rs.) 10.00 10.00 10.00 10.00

Total No. of Shares 8.64 8.64 8.64 8.64

EPS 16.89 13.07 14.25 13.83

*A=Actual, *E=Estimated

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Key Ratio

Particulars FY10 FY11 FY12E FY13E

EPS (Rs.) 48.99 53.46 61.86 73.84

EBITDA Margin (%) 18.13% 17.41% 15.74% 15.74%

PAT Margin (%) 12.29% 10.86% 9.99% 9.94%

P/E Ratio (x) 9.02 8.04 6.95 5.82

ROE (%) 33.36% 28.16% 24.58% 22.68%

ROCE (%) 48.36% 43.75% 37.16% 34.35%

EV/EBITDA (x) 6.11 5.02 4.41 3.68

Book Value (Rs.) 146.85 189.84 251.71 325.55

P/BV 3.01 2.27 1.71 1.32

Charts:

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Outlook and Conclusion

At the current market price of Rs.450.00, the stock is trading at 6.95 x FY12E and 5.82 x FY13E respectively.

Price to Book Value of the stock is expected to be at 1.71 x and 1.32 x respectively for FY12E and FY13E.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.61.86 and Rs.73.84 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 23% and 15% over 2010 to 2013E respectively.

The main products of the Company namely Power Tillers and Tractors are used in the agricultural sector all over the India. Power Tillers and Tractors are exported to whole of Africa.

During the quarter, the company has reported Net Profit increased to Rs.123.10 million from Rs.115.00 million in previous year same quarter.

The Tractors are exported to Middle East, Russia and Turkey. The component parts are exported to Europe, Korea and Thailand.

On the basis of EV/EBITDA, the stock trades at 4.41 x for FY12E and 3.68 x for FY13E.

We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.518.00 for Medium to Long term investment.

Industry Overview

The Indian automobile industry, the seventh largest in the world, has demonstrated a

phenomenal growth. The industry has grown significantly over the last ten years,

during which industry volumes have increased by 3.2 times, from a level of 4.7 million

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numbers to 14.9 million numbers, according to Vishnu Mathur, Director General,

Society of Indian Automobile Manufacturers (SIAM).

The industry, by virtue of its deep connects with several key segments of the economy,

occupies a prominent place in the country’s growth canvas. It exhibits a strong

multiplier effect and has the ability to be the key driver of economic growth. A robust

transportation system plays a key role in a country's rapid economic and industrial

development, and the well-developed Indian automotive industry justifies this catalytic

role by producing a wide variety of vehicles, which include passenger cars, light,

medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters,

motorcycles, mopeds, three wheelers, tractors etc.

Auto Industry in India – Growth Drivers

The automobile sector in India has been experiencing significant growth in the last few

years on the back of factors that include:

Favourable demographic distribution with rising working population and middle

class Urbanisation

Rising affluence of the average consumer as per capita income rises - According

to McKinsey, the middle class in India will grow from 50 million to 550 million

by 2025. With a tremendous growth in wealth as the economy grows, there will

be significant increases in spending on discretionary items and consumer

durables

Increasing disposable incomes in rural agri-sector

Overall GDP growth, with a rise in industrial and agricultural output

Introduction of ultra-low-cost cars

Increasing maturity of Indian original equipment manufacturers (OEMs)

Availability of a variety of vehicle models meeting diverse needs and preferences

– robust production

Greater affordability of vehicles

Easy finance schemes

Favourable government policies

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Indian Automobile market – Key statistics

India's automobile industry, currently estimated to have a turnover of US$ 73 billion,

accounts for 6 per cent of its GDP, and is expected to hit a turnover of US$ 145 billion

by 2016.

The automobile industry currently contributes 22 per cent to the manufacturing GDP

and 21 per cent of the total excise collection in the country, according to Mr Praful

Patel, Minister, Heavy Industries and Public Enterprises. In 2010-11, the total

turnover and export of the automotive Industry in India reached a new high of US$ 73

billion and US$ 11 billion respectively. The cumulative announced investments

reached US$ 30 billion during this period. He also said that the forecasted size of the

Indian Passenger Vehicle Segment is nearly 9 million units and that of 2 wheelers,

close to 30 million units – by 2020.

India achieved the position of the top growing passenger car market in the world

during the January-June period in 2011, overtaking the US, which grew at 14.40 per

cent, according to SIAM. In passenger vehicles, India was the fastest growing market

at 18.20 per cent during the six month period.

India's automobile industry is expected to grow by 11 to 13 per cent in the fiscal year

ending March 2012, according to Pawan Goenka, President, SIAM. The industry body

said that Indian automakers sold 143,370 cars in June 2011.

The four-wheel passenger vehicle market has grown impressively at the hands of the

new middle class, and there is huge opportunity, as market penetration remains low.

Domestic market share for 2010-11

India’s automobile industry is growing fast, but two wheelers remain a dominant

category. More than 78 percent of motor vehicles on the road are two-wheelers, their

popularity driven by low price, high fuel mileage, and an ability to drive efficiently

through dense traffic. The share of different types of vehicles during 2010-11 was

passenger vehicles (16.25), commercial vehicles (4.36), three wheelers (3.39), and two

wheelers (76.00).

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Recent Investments/ Trends

The auto industry has made huge investments in the country. As per 2008-09, the

total investment of auto industry in India was Rs 60,952 crore (US$ 13.89 billion).

Another Rs 78,000 crore (US$ 17.78 billion) of new investments have been announced

by the auto industry out of which some have already been made and the rest will come

up over the next 2-3 years. The industry, therefore, is keeping pace with the growing

demand for vehicles in all segments.

The Karnataka government has cleared investment proposals amounting to more than

Rs 8,662 crore (US$ 19.74 billion), which include the plans of Honda Motorcycle India

plans for a manufacturing unit in the State. Mr Murugesh Nirani, Karnataka

Industries Minister, has said that Honda Motorcycles and Scooter India would be

investing Rs 1,350 crore (US$ 307.7 million) in Narsapur Industrial area of Kolar

district of the State.

Demand for two-wheelers from six of the eight domestic mobike manufacturers rose

16 per cent in June to more than 880,000 units, compared to 761,000 units in June

2010.

Australia is looking at possibilities of building better relations between its world-class

firms and rapidly growing Indian automotive industries with an objective to create new

export opportunities.

Pune-based Force Motors has signed an agreement with Daimler AG, under which

Daimler will supply technology for the development of a multi-purpose vehicle (MPV)

by Force Motors

Swedish automobile manufacturer Volvo Cars Corp is looking at introducing corporate

editions of its luxury sedans S60 and S80 to shore up volumes in the Indian

automobile market.

French car maker PSA Peugeot Citroen has selected a site near Sriperumbudur, to the

west of Chennai, in Tamil Nadu for setting up its car plant. The company is planning

to invest Rs 4,000 crore (US$ 911.72 million) in an integrated automobile project.

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Toyota has launched its first made-for-India small car, the EtiosLiva, in the intensely

competitive hatchback segment. The car, priced between Rs 399,000 and 599,000

(US$9,094 and 13,653), will compete with Maruti Suzuki Swift, Hyundai i20,

Volkswagen Polo and Ford Figo.

Auto industry in India – Government Initiatives

With the gradual liberalisation of the automobile sector since 1991, the number of

manufacturing units in India has grown progressively.

Currently, 100 per cent Foreign Direct Investment (FDI) is permissible under

automatic route in this sector including passenger car segment. The import of

technology/technological upgradation on the royalty payment of 5 per cent without

any duration limit and lump sum payment of US$ 2 million is also allowed under

automatic route in this sector.

The automobile industry is delicensed, and import of components is freely allowed.

With an objective of accelerating and sustaining growth in the automotive sector and

to steer,co-ordinate and synergise the efforts of all stakeholders, the Automotive

Mission Plan (AMP) 2006-2016 was prepared. The plan aims at making India global

automotive hub.The AMP 2006-2016 aims at doubling the contribution of automotive

sector in GDP by taking the turnover to US$ 145 billion and providing additional

employment to 25 million people by 2016.

In the long term, the government has expressed plans to follow a two pronged strategy

for spurring automotive Research &Development (R&D). The first is aimed at

addressing the existing infrastructure gap in the field domain of automotive testing

and homologation through the Department’s flagship National Automotive Testing and

R&D Infrastructure Project(NATRiP), which is being implemented at a cost of Rs 2,288

crores (US$ 521.5 million), and is expected to be completed by the end of 2012. The

second part of the strategy is aimed at leveraging the investments being made in

NATRiP facilities for collaborative R&D with the industry, especially for the small and

medium enterprises (SMEs) in the auto component space.

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Further, with the recent announcement of the launch of the National Mission for

Electric Mobility and the setting up of the National Council and Board for Electric

Mobility, Mr Patel emphasised on the commitment of the government for early

adoption of electric vehicles, including hybrid vehicles, and the manufacturing of these

vehicles and their components.

The government is considering setting up two automotive manufacturing hubs spread

over 10,000 acres each in central and eastern India.The new hubs, aimed at

consolidating India's position as an important destination for low-cost automotive

production, will be in addition to the three existing zones — Haryana, Maharashtra

and Tamil Nadu.

Auto Industry in India – Road Ahead

The automotive industry is at the core of India’s manufacturing economy - India is all

set to become one of the world’s most attractive automotive markets for both

manufacturers and consumers. The resulting benefits to society, such as economic

growth, increased jobs, and stability for families employed by the automotive industry,

are significant.

The long-term potential for growth of the auto industry is very favourable, on account

of low vehicle penetration in the country. As income levels rise and easy finance is

available, the industry will continue to see a healthy growth rate. SIAM estimates that

the growth of the auto industry in FY12 will be in the region of 12-15 per cent.

_______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

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sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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