Sell VST Tillers Tractors; target of Rs 1425: ICICI Direct

ICICI Direct's research report on VST Tillers Tractors

VST Tillers & Tractors (VST) reported a dismal Q2FY19 performance. Topline de-growth of 20% YoY was following the de-growth in sales volume. The real dampener was, however, EBITDA margin that came in muted at 1.9% vs. the usual run rate of 13-15% Power tiller volume in Q2FY19 was at 5,396 units, down 24.2% YoY while tractor volume was at 2,087 units, down 18.3% YoY Net sales in Q2FY19 came in at Rs 144.6 crore, down 20.2% YoY EBITDA for the quarter was miniscule at Rs 2.8 crore with consequent operating margins at all-time low of 1.9%. It was impacted by one-offs in other expenses to the tune of ~Rs 10 crore PAT in Q2FY19 came in at Rs 9.2 crore. Higher PAT was supported by higher-than-expected other income that came in at Rs 16.0 crore Sales volume has been challenging in YTDFY19 with volumes down in October 2018 as well. With dismal H1FY19, FY19E is expected to be a washout year for VST.

Outlook

Going forward, we build in nearly flat sales growth in FY18-20E (growth in FY20E following de-growth in FY19E). On the EBITDA front, we expect de-growth of 7.7% CAGR in FY18-20E (build in 210 bps margin decline) with consequent PAT de-growing at a CAGR of 17.1% in FY18-20E. We value VST at Rs 1425 i.e. 16x P/E on FY20E EPS of Rs 89.1 and downgrade the stock to SELL.