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Punjab Tractors: Tops in adversity - Views on News from Equitymaster
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  • Nov 30, 2000

    Punjab Tractors: Tops in adversity

    The tractor industry continues to be in the doldrums. Punjab Tractors (PTL), the country's second largest tractor manufacturer is also faced with a decline in volumes in the current year. However, inspite of the negativities surrounding the company it has a potential to come out a winner in the long term.

    PTL's segment wise sales
    FY00 1QFY01
    Below 30 HP 13.0% 7.0%
    31-40 HP 70.0% 63.0%
    41-50 HP 6.0% 20.0%
    above 51 HP 11.0% 10.0%

    Despite tough market conditions in the 1HFY01, operating margins of PTL were steady at 17.5% in 1HFY01 as compared to 17.4% in 1HFY00. This is a tremendous achievement for the company in light of its competitors resorting to price cuts and incentives to attract customers in 1HFY01. Its peers also extended credit for long periods of time, a practice not normally followed by PTL.

    As the principal 30-50 HP segment of the tractor industry has reported stagnant volumes in the past few years, the company has shifted its focus to higher horse power segments. In October 99, the company launched the Swaraj 744 in the 48 HP category. This has been very well received in the market and commands much higher margins than PTL's previous models.

    PTL's market share
    (%) FY00 FY99
    Uttar Pradesh 22 23
    Punjab 12 13
    Haryana 17 18
    Rajasthan 12 13
    Maharashtra 19 18
    Andhra Pradesh 17 18
    Bihar 22 17
    Tamil Nadu 16 13
    Source: TMA

    The principal markets of Punjab, Haryana and Uttar Pradesh are fairly saturated with growth rates here being very low in the past year. Realising this the company has expanded its operations into the Southern, Eastern and Western states. Its market share in these states too has gone up. The northern markets continue to be the mainstay of the tractor industry and PTL will lose market share here in the short term as a result of the above strategy. Its strategy of expanding its customer base by adding new dealerships and introducing models suitable for the Southern states will definitely pay off in the long term.

    Besides this it has many other positives to its credit. PTL continues to manufacture fully indigenised tractors, has an excellent management team, its expansions have been financed by internal accruals and it continues to enjoy higher margins and returns as compared to its peers.

    Keeping the above in mind, PTL is definitely a stock to look out for. On the current price of Rs 199, it is trading at 10.5x FY01E EPS of Rs 18.9.



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