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Market leader in the tillers segment in India:

The agricultural equipment market in India is expanding significantly, driven by factors such as the increasing mechanization of farming, government initiatives, and labor shortages due to urbanization. The increasing adoption of mechanization in agriculture, driven by an increase in MSP prices and incentives for small and marginal farmers, positions the company for sustained growth. The focus on smaller tractors and power tillers aligns well with India's fragmented farming landscape with ~70% of farms are small in the size (less than 2 hectares of farm). The company has a 70% share in India’s power tiller industry, which reflects its strong market position and brand trust. Going ahead, to continue its dominant position in the market, VST is planning to launch new products in the small farm machines market in the coming quarters.

Introduction of new products and entry in new markets to drive growth:

In 2016, the company established its presence in the European region under the umbrella of Fieldtrac with four-wheel drive and power steering features which provided safety on the toughest terrain. Later it introduced products that successfully met the tough Euro Stage V emission norms. The compact tractor is mainly sold in the European market predominantly in France, Germany, Netherlands, Spain, Portugal, Belgium and Italy. Also, it has recently entered in UK, Ireland, Canary island, Slovakia, Hungary (N), Romania, Ghana and Congo. VST (to hold 51%) has signed a joint venture with Czech tractor manufacturer and HTC investments to sell Zetor branded tractors in India. The JV will focus on selling the high HP variants to the Indian markets and thereafter expand its presence in the US market by FY26. As per the agreement, VST would manufacture the tractors from Q1FY25 for the Indian market. This development would benefit VST, as it would increase the realizable value per vehicle (Sales price per tractor for high HP in India would be 2-3x as compared to the compact tractor) for the company. Apart from this, VST will be in the position to utilize the Zetor testing facilities based out of Czech Republic and the development facilities which are quite modern and most advanced, which would be cost-free for the company

Strong fundamentals & healthy financial position make a good base for growth, going forward:

Apart from leading market share in tillers, the company has historically maintained a healthy balance sheet with minimal debt, providing stability and the capacity to invest in growth opportunities; Furthermore, VST has witnessed strong cash generation over the years resulting into strong balance sheet. Lower debt-equity & healthy profits have resulted in comfortable interest coverage and healthy return ratios.

OUTLOOK & VALUATION

With a strong presence in Indian power tiller market segment, VST plans to strengthen its presence through the launch of innovative products in this segment. Its strategy to expand geographically with high horsepower tractors should yield healthy margins. Apart from this, the net debt-free company has been reporting stable return ratios, strong cash generation & has been paying dividends consistently for years. Going forward, we expect the company to deliver an EPS of Rs.191.7 in FY27; assigning a target multiple of 32x, we arrive at a target price of Rs.6,172 showcasing an upside potential of 23% from current levels with an investment horizon of 18-24 months.

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