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Punjab Tractors: Improving outlook

Jun 27, 2001

Tractor major, Punjab Tractors Limited, has declared a 5% drop in FY01 turnover, indicating the slowdown that has affected the sector. Its bottomline during the year has declined by nearly 16% backed by lower dividend income as compared to last year and higher depreciation provisioning. The company markets its tractors under the 'Swaraj' brand name.

(Rs m) 4QFY00 4QFY01 Change FY00 FY01 Change
Net Sales 2,535 2,348 -7.4% 10,168 9,645 -5.1%
Other Income 4 0   111 20 -81.7%
Expenditure 2,058 1,904 -7.5% 8,215 7,785 -5.2%
Operating Profit (EBDIT) 477 443 -7.1% 1,953 1,860 -4.8%
Operating Profit Margin (%) 18.8% 18.9%   19.2% 19.3%  
Interest 0 0   0 0  
Depreciation 49 69 41.4% 160 200 25.2%
Profit before Tax 432 374 -13.5% 1,904 1,680 -11.8%
Tax 145 164 13.1% 572 555 -3.0%
Profit after Tax 287 210 -26.9% 1,332 1,125 -15.6%
Net profit margin (%) 11.3% 9.0%   13.1% 11.7%  
Effective tax rate (%) 33.5% 43.8%   30.0% 33.0%  
No. of Shares (eoy) (m) 20.3 60.8   20.3 60.8  
Diluted earnings per share       21.9 18.5  
P/E ratio         10.2  

The company's 4QFY01 really brings out the difficult conditions facing the industry. Punjab Tractors turnover declined 7.4% YoY during the period. Its bottomline shrunk by nearly 27% backed by higher provisioning for depreciation.

In a press release, Mr. Yash Mahajan, Punjab Tractor's vice chairman & MD said that "for the first 11 months (April 2000 to February 2001) our market share was 18.9% with a sale of 42,547 tractors out of an industry volume of 225,500. However, Swaraj did not participate in year end over billing which reduced its market share for March 2001 to 11.6%. Notwithstanding this, we have for the year as a whole regained the No. 2 slot with a market share of 18.1% by selling 45,712 tractors (FY00 - 50,705 tractors)." For the year, aggregate industry volumes reached 253,000 tractors (last year 273,000). Mr. Mahajan added that Swaraj`s new models introduced in calendar 1999 (Swaraj 733 & Swaraj 744) already represent 25% of Swaraj sale volumes (last year 12%). Reflecting Swaraj`s added thrust on the upper range of its models, the 40 plus HP models have reached 29% of Swaraj sale volumes (last year 17%).

The vice chairman pointed out that farm income and tractor demand had been affected substantially by drought conditions in Rajasthan, Madhya Pradesh and Gujarat. Another reason for the downturn in sales was the low open market prices and staggered procurement in surplus states like Punjab & Haryana. Additionally oversupply of some lead players and consequent inventory pile up had let to aggregate industry volumes dropping 8% to 252,800 tractors.

Notwithstanding the downturn in FY01, Punjab Tractors has shown signs of a good beginning to FY02. For the first two months of FY01 (April-May), the company has sold 6,536 tractors (up from 6,506 during the same period last year). This when industry volumres as a whole dropped nearly 15% from 36,200 in April-May 2000 to 30,800 tractors in April-May 2001. Consequently, Punjab Tractors' market share for these two months has improved to 21% (last year 18%). With monsoon starting on a good note with regard to both spreads and timeliness, the company expects that demand sentiments in tractor industry, particularly in states like Madhya Pradesh, Gujarat and Rajasthan which had witnessed a severe drop of output and income over past few years are likely to improve post September 2001.

The company has recommended a dividend of Rs 7.50 per share, subject to the approval of the shareholders at the annual general meeting.

At the current price of Rs 187 the stock trades at a P/E of 10.2 x its FY01 earnings. Looking at the improved performance in the months of April and May 2001, the stock may strengthen in the days to come.


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