In its FY12 annual report, the Dept. of Agriculture & Cooperation
Ministry (Agricoop) corroborated the positive trends we envisaged for
VST Tillers (VSTT). We predicted better industry volumes and farm
segmentation in our report, India Autos-Valuations no longer
compelling , dated 8 April 2012. We maintain a Buy.
Farm segmentation more glaring now. The report says that >50% of
cultivated land is <4 83="83" close="close" hectares="hectares" of="of" p="p" to="to">operational land holders are marginal/small farmers who own less than 2
hectares. This trend bodes well for VSTT.
Quantum leap in volumes. Introduction/increased use of rice
tranplanters/ tillers in Bihar, Assam, AP, Kerala, Manipur, Karnataka and
Tamil Nadu has improved volumes in these states. Tiller industry
volumes jumped 40.5% yoy during Apr-Dec - as per Agricoop report.
VSTT dominates with improved yoy market share of ~45%. VSTT’s
Apr-Dec FY12 tractor volume growth has been a high 45.8% yoy.
Rabi output may offset bleak Kharif produce. Good rains in Aug-
Sep‘12 will improve soil moisture and water availability. This augurs well
for the ensuing Rabi crop, which may offset weak Kharif produce.
Insurance an added advantage. As per the annual report, under
National Agricultural Insurance Scheme, in spite of higher premium i.e.
~3% for Kharif vs. 2% for Rabi, in South India (where VSTT dominates)
claims paid, sum insured and farmers benefited have jumped. This helps
farmers to cover their losses, leaving them with more disposable income.
Valuation. VSTT took price increase of ~3%, raising its 1QFY13
EBITDA margin by 123bps yoy to 16.3%. We maintain a Buy. It is
trading at 5.2 FY14e EPS and 3.2x FY14 EV/EBITDA. Risks: High
interest rates, commodity price rise, increased competition.
No comments:
Post a Comment