Punjab Tractors: On the right track - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Punjab Tractors: On the right track

Jan 14, 2005

Introduction to results
Punjab Tractors, one of the country's leading tractor manufacturers, has reported another quarter of robust earnings with the topline growth of nearly 51% YoY and the bottomline growth of an impressive 56% YoY. The bottomline growth for the nine-month period is stronger at over 65% YoY.

What is the company's business?
Punjab Tractors is the country's second largest tractor manufacturer in the country with a market share of 13% during FY04. The company, after consolidating its strong position in the states of Punjab and Haryana, is now venturing into other regions, so as to expand its business. The company is primarily engaged in the business of tractors, self-propelled harvester combines and rice transplanters. Further, the company also manufactures forklifts.

(Rs m) 3QFY04 3QFY05 Change 9MFY04 9MFY05 Change
Net sales 1,665 2,510 50.8% 4,135 6,227 50.6%
Expenditure 1,420 2,133 50.2% 3,622 5,458 50.7%
Operating profit (EBDITA) 245 377 53.9% 513 769 49.9%
EBDITA margin (%) 14.7% 15.0%   12.4% 12.3%  
Other income - -   32 43 34.4%
Interest 15 14 -6.7% 79 52 -34.2%
Depreciation 40 40 0.0% 120 120 0.0%
Profit before tax 190 323 70.0% 346 640 85.0%
Tax 55 113 105.5% 93 222 138.7%
Profit after tax/(loss) 135 210 55.6% 253 418 65.2%
Net profit margin (%) 8.1% 8.4%   6.1% 6.7%  
No. of shares (m) 60.8 60.8   60.8 60.8  
Diluted earnings per share (Rs)* 8.9 13.8   5.6 9.2  
Price to earnings ratio (x)         22.0  
(* annualised)            

What has driven performance in 3QFY05?
Product mix and volumes spur growth:  Punjab Tractors witnessed a 51% growth in the topline on the back of greater focus on higher horsepower range tractors, which accounted for 87% of the total 8,400 tractors sold during the quarter. Also contributing to the realisations were the volumes, which grew by nearly 17% during 3QFY05 as compared to the corresponding period last fiscal. Further, the central government's steps towards exemption of tractors from excise duty and the withdrawal of cenvat credit helped the company enhance revenues by Rs 230 m during the quarter. This amount comes to Rs 410 m for the nine-month period.

(%) of sales 3QFY04 3QFY05 9MFY04 9MFY05
Consumption of raw materials 66.3% 71.6% 66.2% 71.8%
Staff cost 9.9% 7.0% 11.9% 8.3%
Other expenditure 9.1% 6.5% 9.4% 7.6%

Higher volumes negate spurts:  Punjab Tractors witnessed an improvement of 30 basis points in the operating margins despite sharp spurts in raw material (read steel) prices. Although steel prices did lead to an increase of over 5% in raw material prices (accounting for 71% of sales), the company exercised control over its other expenses and staff costs, thereby resulting in better margins. Also, higher volumes led to better economies of scale.

It all trickles down to the bottomline:  Punjab Tractors witnessed a strong growth of nearly 56% in the bottomline during 3QFY05 as compared to the corresponding period last fiscal. This could largely be attributed to the better realizations outpacing costs and savings of nearly 7% in the interest obligations. Having said that, the bottomline could have been much higher but for the 106% rise in tax costs.

What to expect?
At Rs 202 the stock trades at a healthy 22 times its 9mFY05 annualised earnings. Since the changeover of management, wherein the state government divested its stake, the company has shown an improvement in performance and has taken on a proactive strategy. Though we believe this focus is good in the long term, in the short term the valuations factor in much of the positives.

To Read the Full Story, Subscribe or Sign In
To Read the Full Story, Subscribe or Sign In

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


  • Track your investment in PUNJAB TRACTORS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks