Buy VST Tillers; target of Rs 2100: ICICI Direct

ICICI Direct's research report on VST TillersVST Tillers Tractors (VST) reported a muted Q1FY17performance. Net sales in Q1FY17 came in at Rs 178.1 crore, up 6.9% YoY. In Q1FY17, power tiller sales volumes grew 8.1% YoY to 7300 units while tractor sales volumes de-grew 4.8% YoY to 2158 units. EBITDA in Q1FY17 was at Rs 24.6 crore, with corresponding EBITDA margins at 13.8%. Margins came in substantially lower YoY primarily on account of higher employee costs (one time gratuity charge to P&L account and increase employee strength) and higher operating costs (higher dealer discount’s due to change in credit terms). PAT in Q1FY17 came in at Rs 20.0 crore.

 

In Q1FY17, VST’s performance was muted due to a delay in onset of monsoon & one-time charges in the P&L. Given the high competition in the marketplace, we downward revise our volume estimates over FY16-18E while at the same time increasing net realisations due to launching of higher hp variants, resulting in a marginal decline in EPS estimates. However, VST still remains a portfolio stock with unlevered balance sheet (net cash of Rs 148 crore), controlled working capital cycle (90 days) and robust return rations (RoCE & RoIC at 24% & 32% respectively). Going forward, over FY16-18E, we expect sales, PAT to grow at a CAGR of 13.4%, 10.6%, respectively, in FY16-18E. We value VST at Rs 2100, i.e. 20x P/E on FY18E EPS of | 105 and assign a BUY recommendation.