Brokers say buy Punjab Tractors, target price of Rs 260

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Brokers say buy Punjab Tractors, target price of Rs 260

Broking houses are bullish on Punjab Tractors, PTL. Angel Broking has recommended a 'buy rating' on the company. It has a target price of Rs 260.

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Broking houses are bullish on Punjab Tractors , PTL. Angel Broking has recommended a 'buy rating' on the company. It has a target price of Rs 260.

The report lists out some investment positives, these are below: -

"Punjab Tractors is one of the leading manufacturers of tractors in India promoted by Punjab State Industrial Development Corporation. PTL has an installed capacity of 60,000 tonne per annum, tpa for the manufacture of tractors, self-propelled harvester combines and rice planters. Total installed capacity for castings and forklifts is 8000 tpa and 300 tpa, respectively."

"In FY2006, we expect industry growth to be in double digits. FY2006 began on a slow note for the industry. However, on the back of satisfactory monsoons demand is likely to perk up in the second half of the fiscal."

"Budget FY2005 had announced various agriculture friendly measures to boost farm income in turn spiking tractor demand. The Budget also proposed the Bharat Nirman Project and Micro Irrigation Scheme to increase the area under irrigation."

"In FY2005, PTL clocked a 25% increase in tractor volumes to 30,300 (24,200). PTL witnessed a sales growth of 43.6% to Rs 858 crore (Rs 8.58 billion) [Rs 597 crore (Rs 5.97 billion)] in FY2005. PTL has maintained its market share of 13.5% on account of a sound product mix and healthy volume growth backed by good monsoons."

"PTL derives majority of its revenues from the 31-40 HP range tractors which accounts for around 51% of total industry sales. New models are expected to benefit PTL, as these are 3-cylinder tractors, which have higher demand in the market. PTL is also gauging customer preferences and would be introducing a wide range of models along with providing customized upgradation of Swaraj 939"

About the company's valuations, the report says, "PTL's capacity utilisation levels are expected to improve as demand picks up both in the domestic and export markets. Higher operational performance shall boost profitability levels of the company going ahead. At CMP, the stock is trading at 15.3x FY2006E earnings of Rs 13. We recommend Buy the stock with a 12-month target price of Rs 260."

About the company's itself, the report says,

"Punjab Tractors one of the leading manufacturers of tractors in India, was promoted by Punjab State Industrial Development Corporation, PSIDC as India's first large scale, totally indigenous project to commercialize the country's first truly India tractor - Swaraj. Through a divestment programme, CDC Financial Services, Mauritius later took over the promoters' stake. PTL has an installed capacity of 60,000 for the manufacture of tractors, self propelled harvester combines and rice planters. Total installed capacity for castings and forklifts is 8000 tpa and 300 tpa, respectively. PTL has its factory at Mohali, Punjab, where it manufactures agricultural tractors, power tillers, agricultural machinery, forklifts and sophisticated engineering equipment."

"Currently, PTL has a tractor portfolio of 9 models with more than 100 variants. While its journey started with selling tractors majorly in North India, the company is now slowly expanding its presence to cover rest of the country. Its current dealer strength is 403 mostly concentrated in North India. PTL is the largest producer of Harvester Combines in the organised sector. Forklift is another product line where over a period of time demand has remained subdued despite several promotional initiatives by the company over the last two decades. However, we expect Harvester Combines and Forklifts also to add to volumes in the future."

About the company's first quarter results review, the report says,

"In Q1FY2006, PTL witnessed a 19% YoY growth in net sales to Rs 238 crore (Rs 2.38 billion) [Rs 200 crore (Rs 2 billion)]. PTL had focused at the higher HP range tractors during the year. This higher range model contributed 87% of total sales of 7,800 tractors (7400). Operating margins rose by 11 basis points, bps to 10.7% (10.6%). The jump in raw material cost, as a % of
sales, was from 74% in Q1FY2005 to 76% in Q1FY2006. Raw material costs were high due to a rise in major raw material prices. However, the increase in raw material costs was partly offset by a decline in other expenses, which as a % of sales decreased by 95 bps to 5.8% (6.8%). Personnel cost too as a % of sales fell by 56 bps to 7.7% (8.3%). PTL could manage to offset the burden from the rise in the prices of steel components by having a sound product mix in place coupled with volume growth and control on operating expenses."

"Other income of Rs 61.3 crore (Rs 6613 million) during the quarter was due to sale of the Swaraj Mazda stake by PTL to Sumitomo Corporation  - a joint venture partner in Swaraj Mazda Limited. Meanwhile, Interest outgo declined by 25% to Rs 1.5 crore (Rs 15 million) [Rs 2.0 crore (Rs 20 million)]. Depreciation remained flat during the quarter at Rs 4 crore (Rs 40 million)."

"Net profit jumped hugely on the back of the Income generated from sale of the Swaraj Mazda stake to Rs 70.7 crore (Rs 707 million) [Rs 10 crore (Rs 100 million)]. Net profit margins increased to 29.7% (5.0%)."