May 11, 2002|
Punjab Tractors: The Indian Swaraj
If one were to look at the broader trend on the bourses over the last six months, apart from software sector, auto stocks have been buzzing with activity. But within the auto sector, tractor manufacturers have been languishing at the current levels for quite sometime. Punjab Tractors in one of them.
Promoted by Punjab State Industrial Development Corporation (PSIDC) in 1971, Punjab Tractors Ltd. (PTRA) has come a long way. Despite being a state-managed company, its continuous focus on research and development and successful new product introductions have enabled it to become the second largest manufacturer of tractors in India. Over the years, PTRA has consistently increasing its share in the overall pie. The company’s market share for the year ended March 31, 2002 stood at 20% as compared to 19% last year (13% in FY94).
The current year performance of the company was lacklustre. But the results have to be viewed in light of the fact that it has been a rough run for the tractor segment in the last two years (in FY02 industry volumes is estimated to have plummeted by 16%). Due to over-capacity and undercutting by some of the leading players, there has been a huge pile-up of inventory with the dealers. As a result, both volumes and realisations of PTRA were affected in FY01 also. While sales declined 8% to Rs 8,855 m, net profit fell by 10%. But a quarterly analysis of the company’s performance underscores the industry status.
PTRA managed to gain market share for the first three quarters in FY01 with average quarterly volumes of 35,000 units. The company had a market share of 22% for 9mFY02, which dropped sharply in 4QFY02 due to aggressive ploy adopted by its peers. While industry volumes grew by 20% Q-o-Q, PTRA’s unit sales declined by 23% over 3QFY02. Instead of pushing volumes to the dealers, the company seems to have a cautious stand so as to maintain profitability, which is reflected in its operating margins. PTRA’s operating margins declined by only 30 basis points, which is comparatively lower than its peers.
Apart from tractors, the company also is engaged in manufacturing of harvester combines, forklifts, castings (backward integration) and spare parts sales that together accounted for 8% of sales in FY01. Except for spare parts, we expect the contribution to remain stagnant from other interest areas. The backward integration and value engineering efforts taken by the company over the years has placed PTRA on a very competitive scale when it comes to end product pricing, without sacrificing profits. The following table reveals the average realisation per vehicle for the company along with its key competitors.
A comparative analysis…
But there are some concerns as well. The company has a commanding market share in states like Punjab and Haryana, where tractor penetration is one of the highest in India (though lower by international standards). So growth prospects, to that extent, are limited. But PTRA has made considerable progress in other regions as well over the last three years, which is creditable. The company has a 20% market share in UP and MP that accounted for as high as 37% of industry volumes in FY01. But at the same time, it still has a long way to go in Southern market (16% market share) where peers like TAFE and M&M have a strong presence.
|(% of sales)
||PTRA market share
| Punjab & Haryana
|UP and MP
|Bihar, WB & Orissa
|Raj, Guj & Mah
|AP, Kar, TN, Kerala
Besides, competition has increased significantly in the industry with a number of global players like John Deere and New Holland setting up manufacturing facilities in the country. Fresh capacities have come at a time when demand has been subdued. Growth prospects in the near term also remain challenging. So price realisation might continue to be under competitive pressure.
Wider product portfolio…
| (% of sales)
|| Market share (%)
|Above 50 BHP
|Upto 25 BHP
Nevertheless, going forward, we expect the company’s market share to increase in the 41-50 BHP and above 50 BHP segment. Together both the segments contributed to 29% of unit volumes for the company. This along with the value engineering initiatives taken by the company would also benefit in the long run. The size of the tractor market has more than doubled in the current decade, making India the largest market in the world. We expect the industry to grow in line with the GDP growth in the future. Given the long-run potential of the sector, Punjab Tractors is expected to improve its overall market share as well.
The stock currently trades at Rs 150 implying a P/E multiple of 9x FY02 earnings. Given its market leadership, conservative financial accounting standards, past track record of the management and increasing awareness of farm mechanisation, PTRA is set to benefit from any upturn in industry volumes. At the current juncture, valuations are on the attractive side from a medium to long-term perspective.
More Views on News
Aug 14, 2017
Tata Motors Ltd disappoints again for both India and JLR business. Management commentary indicates a slow year ahead.
Aug 2, 2017
GST realted cost impacts Margins, Management expects good year ahead.
Aug 1, 2017
Good Recovery in the Scooters market, expects pick up in exports too.
Aug 1, 2017
New Export Markets picking up, Management expects good recovery in domestic Three wheeler market.
Jul 6, 2017
Ends the year on a Flat note. Expects good recovery in the exports market.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 4, 2017
The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407