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Stable performance, on well charted growth path…

VST Tillers & Tractors (VST) reported a stable operational performance in Q4FY21. Net sales for the quarter came in at | 195 crore, down 4% QoQ. Adjusted EBITDA in Q4FY21 was at | 23 crore with corresponding EBITDA margins at 12.0%, down 270 bps QoQ. EBITDA is adjusted for one-time provision of ~| 13.5 crore for Voluntary Separation Scheme (VSS) for its employees at Bengaluru plant as well as ~| 2 crore write-off in other expenses. Adjusted PAT in Q4FY21 was at | 28 crore, down 8% QoQ. VST declared a dividend of | 20/share for FY21.

Key highlights from Q4FY21 conference call

Farm sentiments have started to revive as pandemic resurgence is subsiding with VST seeing healthy demand for its product profile.

Key highlights from the call include: (i) higher other expenses for the quarter include CSR spend of | 3 crore, | 2 crore as write off i.e. interest not received from dealer, (ii) post VSS, employee costs will reduce by ~| 13 lakh/month, (iii) VST will look at appropriate monetisation route for its land parcel in Bengaluru (~20 acres, classified for industrial purposes), (iv) VST’s market share in power tiller segment was at ~53% as of FY21 end with total industry volumes pegged at ~53000 units, (v) non-subsidy share of power tiller sales is currently at ~40-50% wherein farmers are purchasing power tiller at retail without waiting for subsidy release by the state governments (they do apply for subsidy), (vi) VST has started supplying power tiller to two OEMs domestically and expects to contract manufacture ~3000 units in FY22E.

The same will be counted in volumes as part of monthly volume release but not in market share, (vii) higher hp tractor sales in FY21 was at ~1000 units vs. ~260 units sold in FY20 with FY22E target at ~2000 units, (viii) VST has cumulatively taken ~4-5% price hikes thus far in CY21, led by commodity costs inflation, (ix) VST has added 155 dealers in the power tiller segment & 110 dealers in tractor segment in FY21, (x) dealer inventory in power tiller segment was at ~40-45 days while the same in tractor segment was at ~30 days, (xi) VST sold ~1800 power weeders in FY21 and expects to grow this business exponentially, going forward, (xii) working capital gains in FY21 were led by supply constraints across the value chain, (xiii) VST has guided for ~12-14% as EBITDA margins range, going forward, (xiv) capex spend for FY22E is envisaged at ~| 60 crore, primarily meant for product development including the spend with Zeteor on new platforms, (xv) steel forms ~40-50% of its raw material basket costs, (xvi) It remains committed to its | 3,000 sales target by 2025.

Valuation & Outlook

We remain positive on VST given its market leadership in power tiller segment domestically as well as penchant to grow in the higher hp tractor space and other farm machinery segment. Going forward, we build in sales, PAT CAGR of 14.4%, 8.5%, respectively. We retain BUY rating on the stock valuing it at | 2475, 20x P/E FY23 EPS (earlier TP | 2275). Capital efficient business model, healthy cash surplus b/s provide good margin of safety.

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