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VST Tillers: A dull year - Views on News from Equitymaster
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VST Tillers: A dull year
Jun 4, 2013

We present herewith the March 2013 quarter result analysis of VST Tillers.

Performance summary
  • Net sales decline by 10% YoY and 9% YoY during 4QFY13 and FY13 respectively.
  • Operating profits remain flat during both the periods on the back of an expansion in margins.
  • Net profits rise by 4% YoY in 4QFY13; decline by 3% YoY during FY13.
  • Company's board recommends a dividend of Rs 9 per share (dividend yield of about 2.5%).

Financial performance snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 1,565 1,406 -10.2% 5,306 4,817 -9.2%
Expenditure 1,350 1,192 -11.7% 4,578 4,095 -10.6%
Operating profit (EBDITA) 215 214 -0.6% 728 722 -0.9%
Operating profit margin (%) 13.7% 15.2%   13.7% 15.0%  
Other income 12 4 -62.1% 46 21 -54.6%
Interest 2 5 104.3%  9 13 48.8%
Depreciation 8 9 2.4% 32 34 4.4%
Profit before tax 216 205 -5.1% 734 696 -5.1%
Tax 71 54 -23.5% 234 211 -10.2%
Effective tax rate 32.7% 26.3%   31.9% 30.2%  
Profit after tax/(loss) 145 151 3.9% 499 486 -2.7%
Net profit margin (%) 9.3% 10.7%   9.4% 10.1%  
No. of shares (m)       8.6 8.6  
Fully diluted EPS (Rs)*         56.2  
P/E (x)*         6.4  
* Based on trailing 12-months earnings
What has driven performance in 4QFY13?
  • VST Tillers Tractors' (VST) revenues during the quarter ended March 2013 came in lower by 10% YoY. On quarter on quarter basis i.e. in comparison to the revenues of the quarter ended December 2012, revenues are higher by 15%.

  • VST's operating profits come in flat (lower by 0.6% YoY) as margins expand by 1.5% YoY to 15.2%. The expansion in margins came in largely due to lower raw material costs (as a percentage of sales). On a QoQ basis, profits are higher by 9%, while operating margins contracted by 0.7%. Net profits increase by 4% YoY and by 17% on a QoQ basis during the quarter ended 4QFY13.

  • During FY13, VST's revenues declined by 9% YoY, while its profits declined by about 3% YoY. While the company's margins expanded on a year on year basis, thereby almost helping the company to report flat operating profits, the lower other income led to a higher decline in profits during the year.

What to expect?

At the current price of Rs 358, the stock is trading at a multiple of about 6.4 times its trailing twelve month earnings. After a weak quarter ended September 2012, VST Tiller's operating performance improved over the next two quarters. Nevertheless, on comparing the year on year results, the top line numbers disappointed. Especially when compared to the strong numbers the company had been reporting the past few years. The average revenue growth during the five year period ended FY12 was around 27% per annum.

We believe the company continues to be well placed for the long term. The fact that with farm sizes in India are becoming smaller, the need for using smaller mechanized equipment is what will drive growth, we believe. Given VST's foray into the small tractors segment will only help the company diversify as well as leverage on its brand name. Keeping all these broader points in mind, coupled with VST's long term track record, strong financial health as well as the current valuations, we maintain our 'Buy' view on the stock from a long term perspective.

We would however like to remind our subscribers to make sure that they do not have an exposure of more than 2-3% on any one stock. This practice is to mitigate risk. For more details, please refer to our asset allocation page.

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