• FEBRUARY 5, 2001

Punjab Tractors: Consistent strength

Punjab Tractors Ltd (PTL), recently reported its 3QFY01 results. The company's performance in the first two quarters was dismal as was for the other tractor manufacturers. However, in 3QFY01, the company has got its act together and shown its drive to perform. Its quality of consistent performance, has resulted in PTL enjoying higher margins than its peers.

The company's operating margins for 3QFY01 at 20.5% were an improvement over its 3QFY00 margins of 20.4%. At a time when its peers continue to face a decline, this is definitely creditable.

  Gross margins (%) Net margins (%) RONW (%) ROIC (%)
  3QFY01 3QFY00 3QFY01 3QFY00 FY01E FY01E
Punjab Tractors 20.5 20.4 13.3 13.2 28.3 28.6
M & M 8.1 12.3 3.9 6.6 6.8 8.1

The company has achieved this by a favourable product mix, as it has managed to increase sales of its new model Swaraj 744, which is a higher margin product as compared to its previous models. This model due to its wide acceptance has sold 9,000 units within fifteen months of its launch. Besides the company has expanded its dealer network and also extended higher incentives to them, a policy it was never in favour of earlier. All these have attributed to the company's better performance.

In terms of market share too the company has fought back. In the first two quarters the company's market share fell to 18.2% in 1HFY01. However the company has managed to regain it back and enjoyed a market share of 19% in 3QFY01. It regained its market share in the traditional northern markets while consolidating its strength in the emerging markets of Bihar, Andhra Pradesh and Tamil Nadu. The company's volumes for 3QFY01 remained flat at 12,960 tractors as compared to 13,003 tractors in 3QFY00. Even this is favourable if seen in the light that the tractor industry declined by 7% during 3QFY01. Hence the company has taken over the market share of some other players.

Market leader, Mahindra and Mahindra (M & M), too has managed to gain a significant chunk of market share in the current financial year. However, M & M has achieved this at the expense of its margins, through its strategy of advancing tractors with no down payment. M & M's operating margins declined from 12.3% in 3QFY00 to 8.1% in 3QFY01. Though this is not entirely due to its tractors division only, M & M's utility vehicles too are facing tough times.

The tractor industry as a whole is reeling under the pressure of lower farm prices and oversupply. Added to this, the uneven monsoons and the expected poor rabi crop does not seem very encouraging.

Though the industry is in a slump currently, PTL is well geared to reap the rewards when the recovery does set in. Its low valuations, negligible debt levels, profitable product mix and high operating margins are signs of a company with a strong potential.

On the current price of Rs 194, it is trading at 9.7x FY01E EPS of Rs 19.9.

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