An uptick in demand during Diwali – VST Tillers Tractors

Update on the Indian Equity Market:
On Thursday Nifty closed 1.0% higher at 12,906. Among the sectoral indices, PSU Banks (+1.9%), Metal (+3.9%), and Fin Services (+1.7%) closed higher. None of the sectors closed lower. Eicher Motors (-1.6%), Maruti (-0.7%), and BPCL (-0.7%) closed on a negative note. JSW Steel (+7.0%), Tata Steel (+5.2%), and Grasim (+4.4%) were among the top gainers.

Excerpts from an interview of Mr. Antony Cherukara, MD, VST Tillers with CNBC-TV18 dated 23rd November 2020:

● Better agriculture and the festive season have led to rising demand for tractors and farm equipment.
● Speaking on the outlook, Mr. Cherukara says, the outlook is positive as an uptick in demand is seen.
● There was an uptick in demand during the Diwali festival.
● On tillers, he says, the import slowdown is coming into place, and going forward there will be an effect on demand based on that.
● 15-20% of imports of tillers were from China earlier. The Chinese tillers are cheaper as compared to Indian manufacturers. The quality of Indian tillers is good.
● On tractor sales, he says, the expected growth for tractors in FY21E is expected to be in the range of 12-15%, and a 20%+ growth is expected in tillers.
● There is not much visibility on Q4FY21 as of now.
● Speaking on cash on the books, he says, the cash flow is healthy and the company has generated 70cr + of additional cash flow in H1FY21.
● The relocation of the Benagluru facility to Hosur is on track and it is expected to be done by Q4FY21E. There will savings after this relocation.

Consensus Estimate: (Source: market screener and Investing.com websites)

● The closing price of VST Tillers Tractors was ₹ 1930 as of 26-November-2020. It traded at 22x/ 20x/ 14x the consensus Earnings per share estimate of ₹ 87.3/98.8/136 for FY21E/ FY22E/ FY23E respectively.
● Consensus average target price for VST Tillers Tractors is ₹ 1,977/- which implies a PE multiple of 15x on FY23E EPS of 136/-.

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