V.S.T. Tillers Tractors Limited (531266) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '21 Results Conference Call of V.S.T. Tillers Limited (sic) [ V.S.T. Tillers Tractors Limited ] hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Annamalai Jayaraj from Batlivala & Karani Securities. Thank you, and over to you, sir.

Thank you, Aisha. Welcome all to V.S.T. Tillers Tractors Limited 1Q FY '21 Post Results Conference Call. We have with us today, Mr. Antony Cherukara, Chief Executive Officer; and Mr. Chinmaya, Company Secretary. I'll now hand over the call to Ms. Antony Cherukara for his opening remarks, will be followed by the question-and-answer session. Over to you, sir.

Yes. Good morning, everyone, and thank you for attending this analyst call. In Q1 this financial year, we have posted a total revenue of INR 155.5 crores against previous year of INR 124.66 crores. The operating revenue is at INR 146.24 crores, which is a growth of about 5% over the previous year. EBITDA increased to 16.47% compared to previous year of 13.37%. At PAT level, we are at INR 17.07 crore against previous year of INR 11.55 crore, which is a jump of about 47.8% compared to last year. On the number front, in power tillers, we have done 5,186 power tillers against previous year of 5,022. And in tractors, we have done 1,766 number against previous year of 1,692. With this opening remarks, I will open up for questions. Thank you.

[Operator Instructions] The first question is from the line of Nihil Parekh from Dhanki Securities.

I had a couple of questions. So first, if you can share the value breakup and the market share with respect to tillers and tractors?

Yes. Just a second. The revenue from power tillers is INR 72.41 crores. And for tractors is INR 52.86 crores.

Will you be able to help with the corresponding, I'm sorry?

Previous year, I'll just -- give me a minute, I'll just give you the previous year's numbers for the quarter. In the meanwhile, I'll share the market share. In tractors, we have gained by 1% in market share. We are at 10.5% now. And in tillers, we have gained about 4%. We are at 51% market share now.

Okay, okay. And sir, also, if you could throw some light on the recent restrictions announced by the Government of India. What opportunity it creates for us in terms of maybe contract manufacturing, et cetera?

Yes. Especially on the power tillers, there is an import restriction that the government has put in. And definitely, we stand to gain first in the market supply. Also, we are in talks with few manufacturers to supply contract manufactured power tillers to them. And coming back to your earlier question, our revenue last year on power tillers was INR 69 crores and on tractors was INR 49 crores.

Okay. Okay. So, sir, just referring back to the same questions on restrictions, restrictions with respect to power tillers. So sir, how do we see this industry shaping up so that 30% import proportion was there, so that gets reduced to what, 10%, 15%? And for us, how does that -- the capacity utilization shapes us -- for us?

Yes. So as far as the import restrictions are concerned, it is allowed to only 10% of the value of the previous year, so -- which means eventually, the imports will not happen. So that definitely -- there is roughly about 15% to 20% or in few years, even 30% of the market has been because of Chinese imports. So that definitely once the inventory runs out, there will be a vacuum. So many players are there who are totally dependent on imports from -- especially from China. So a couple of them are in talks with us. And we are in final stages of supply agreement from our end to them.

Sir, a last question. Sir, we recently tied up with Pubert for power weeder. So just -- I just wanted to check the market size, the opportunity we have there and what are the major players who are there in the market at the present?

Yes. So Pubert is mainly manufacturers of power weeder that is 8-horsepower and below. The unit price of this segment is about INR 70,000 to INR 60,000, varying from where it is brought from and the technology. So starting from INR 40,000 to INR 70,000 is the range of these products. The market size, in the last 3 years, it has grown from 25,000 units to about last year, it was 1,10,000 units. And the projection going forward is it will be in the next 3 to 4 years at about 300,000 units. So it is growing at an exponential pace, and we look to take advantage of it. There are several importers into the market today and hardly any manufacturers in India for weeders.

Okay, okay. And sir, if we have to get into the manufacturing, what is the CapEx do we look at? And do we have to do sort of a tie-up for technology or et cetera?

Definitely, we are looking at manufacturing only. As VST, we have never kind of dependent on import. Even in our power tiller business, our import content is 0. Similarly, we want to proceed in this direction with power weeder, and that is the intent of the tie-up with Pubert. Due to COVID-19, we have not finalized the terms of the agreement yet because we have not been able to travel to each other's facilities. However, we decided online to go ahead with the agreement so that we can start business, but ultimate aim is to manufacture in India. It will be a completely Atmanirbhar product.

Okay. And sir, any idea -- any guideline on the CapEx, sir, for this power weeder?

The CapEx will be very little because the capacity we already have, you know our plants are running only at about -- power tiller plant is also running at about 62% utilization. So there is enough capacity for taking this up. So there is no infrastructure and plant spend. Some development costs will be there for setting up the components in India. So that -- it's a very rough estimate I can give you will be in the tune of less than INR 20 crores.

The next question is from the line of [ Nishit Shah ] from [ Aequitas ].

Sir, can you throw some light on the companies currently manufacturing these power weeders?

That's what I said. There are almost no manufacturers in India. There are couple of assemblers who bring CKD or SKD from China and then assemble it in India. There are no manufacturers at all. So mainly people are all importing from neighboring countries.

Okay. Sir, can you give the sales number for higher HP tractors for the quarter?

Yes, we have done 175 tractors in higher HP, 176 tractors to be precise.

And how does this compare with last year?

Last whole year, we did only about 240 tractors.

Okay. Sir, and what would be the dealer inventory currently?

Oh, very little. We -- in the first quarter and even up till now, the demand is on the upswing, and the challenges, as you would know, in the industry has been on the supply side. The dealer inventories have come down by almost 60% in our case.

Okay. So are we facing any supply side issues?

We are facing challenges on the supply side, yes.

Okay. And do we think -- so what is our take? By when will we be able to resolve our issues?

So unfortunately, this is a very strange situation. It is not limited to one component or something because it is more to deal with local lockdowns as it happens. So -- and due to some suppliers, for example, last month, we had issue because our fuel injection equipment did not come from Bosch because they had to deal with COVID-19 in their plant. Before that, we had an issue at Chennai when Chennai completely got locked down. There were several suppliers in the Chennai belt from where we had trouble in getting material. Now this month, we are facing floods in Kolhapur and Mumbai area, wherein the supply has got disrupted for almost 3 to 4 days because of the heavy rains and floods. So unfortunately, it's a very strange situation. It is not to deal -- it is not something related to capacity or capacity planning. It is related to disruptions that is happening on and off.

Okay. And sir, what is the subsidy position for our key states?

Subsidy, nothing has been released so far in this year.

And our expectation?

No expectations. As I have said earlier also, because we don't feel that this year, the government will release subsidy. Although some state governments have gone for settling the price on power tiller, which is a very good thing for us because they have given us a higher price in Karnataka, Gujarat and Orissa and Tamil Nadu. So that is good. But there is no confirmation from any state government as to when the subsidy will get released, and we don't have a definite answer on that.

Okay. And sir, this M&M and Escorts said that they were not able to fulfill their demand. So was that the case for us also for tractors?

Yes. In every -- even in power tiller, even in tractor, we are running with advanced payments from dealers, advanced orders from dealers, both in the power tiller and the tractor segment, even as of August.

Okay. And sir, what would be our expectation for the whole year in tractors and tillers volume growth?

The -- as I've said earlier, we expect to grow at least 10% to 15% in the tractor segment and at least 15% to 20% in the tiller segment.

The next question is from the line of Hitesh Bhargava from B&K Securities.

Sir, you said that in this quarter, we have sold 176 higher HP tractors, but in spite of that, our realization -- tractor realizations remain the same Q-o-Q. So is there anything like we have taken, I mean, due to some reason there is any one-off?

Realization as in profitability has definitely improved for tractors. But revenue has more or less, as I said, the volumes, I said, it has not grown much because of the supply side issues, nothing to do with the demand. The -- and remember, the tractor suppliers for higher HP and the lower HP, that is the compact tractors were different. The factories also currently are different. So while the higher HP grew from 50 tractors last year to 175 tractors for Q1 this year, the compact tractors also grew. But the supply side issues were different for both the segments because the suppliers are different for higher HP and the compact tractors. So the overall growth in quantity is 1,766 over last year 1,692. So the volume growth is not very high in Q1.

Okay. And as you said that there is supply side issues. Are the supply share issues higher in -- I mean, in which segment? Is it in compact segment or in higher HP? Where are we seeing this higher, I mean, issues of supply side?

Both the sides, there are issues both in compact as well as higher. The higher HP, our volumes are lower compared to the major players. The ability to grow rapidly is there because our base volumes are low. But in compact tractors, our base volumes are high. And the -- related to that, issues are there. So I wouldn't say there are no issues in either side. In fact, if you look at our results and look at the balance sheet, we have been able to optimize inventory, optimize receivables and build a -- which I have been talking to all of you since the last 4 quarters. So -- and in fact, if you remember my earlier calls, I've also told you by quarter 1, we will be almost back to normal. And I'm happy to say that whatever I told you earlier, we are quite close to realizing it in quarter 1 itself.

Okay. Sir, coming to this higher HP tractors, did we expand to any other new states? And what is our, I mean, like major demand drivers in this segment currently?

Yes, we have now taken the higher HP sale to almost close to 100 dealers across India now. In the North alone where VST is not present, as you know, we have added about 8 to 10 dealers in quarter 1. And we will continue to expand in UP, MP and Rajasthan, which are main markets for higher Horse Power tractors where VST was not present earlier.

And what is our strategy there, sir? Are we going with some -- I mean, how is the pricing of ours in those regions? And what is the, I mean, motive or the dealers attracting towards VST? I mean, like, what are the strategies we are using to, I mean, attract the dealers actually to set up the showrooms there?

Yes. So one is very clearly that there is a unique value proposition in terms of value for money positioning, that is with all the features like oil immersed brake, power steering, all the advanced features and in fact, recently, now we have further improved our styling, it is very different now from what we launched in the beginning. So that has also been improved. With all these modern looking tractors which comes at a price lower by about 5% to 10% than the main competition. So as I explained to you earlier, VST is looking for 2 positionings clearly. One is the value for money positioning, which is the offering we are giving now. And we want to create the premium positioning through the VST's Zetor tie-up, which will be -- we will be launching in the future.

Okay. And coming to the working capital, sir, how is your working capital situation now? And how is the dealer receivables, trade receivables and all going on?

What is -- I didn't get your question. I -- you are not clearly audible.

Okay, sir. Can you talk about the working capital position currently?

Yes, working capital position is considerably improved, as you would have seen our receivables have come down to about INR 80 crores roughly. I'll give you the exact figures. Just hold on. Yes, receivables in quarter 1 are at about INR 87 crores, which has come down. If you compare it with previous year, receivables were at INR 115 crores last year quarter 1. And inventory, we are at INR 78.21 crores. If you compare it with previous year quarter 1, we were at INR 142.8 crores and slight increase in trade payables, from INR 67 crores last year, it has gone up to INR 85 crores. So we are in a very, very healthy position in terms of net current assets.

Okay, sir. My last question. What is our current utilization in tractor segment? Sir, you said that's 62% in tillers. So what is it in tractors?

Tractor is at about 68%.

The next question is from the line of Mayur Milak from BOB Capital. [Operator Instructions] As there is no response from the current participant, the next question is from the line of Mukesh Saraf from Spark Capital.

Yes, sir. So the first question is, like you were mentioning that subsidies have not been announced this year and you're not even expecting it to kind of come in this year, but yet you're expecting volume growth. So how do we read this? Does it mean that people are buying without the subsidy now?

Yes. That is -- I think, Mukesh, I don't know -- I think we have discussed this earlier. The retail sale on cash is increasing in power tillers. So in the first quarter, up till July, it was almost 79% of the sale was happening on cash -- sorry, June was 79%, and July was about 58%, 59% on cash. We are seeing the same trend in August. So people are kind of not waiting for subsidy anymore. That is a big change that we are seeing. Even in August, the demand position continues to be high. And secondly, as I have told you before, we are also prepared to launch a power tiller, which is subsidy-neutral. I've shared this with you before. I have not launched it yet because the demand is quite good.

Right, right, right. So -- and does it mean that the farmer is kind of funding himself and waiting for the subsidy later? Or they're just not even applying for the subsidy? Because it's...

Our -- yes. No, no. It is -- definitely, they are applying for subsidy. There is definitely a purchase behavioral change. What I'm seeing is now the customer has kind of reconciled that it is anyway DBT transfer. So it will come in directly into my account. And I will go ahead and buy now and it will come into my account. So the dealers also have been telling this for -- to the customer for the last 2 to 3 years when this DBT transition was happening. Right now, I think the customer has more or less realized that, that is the way that the things will work. So they are paying the full amount to the dealer and waiting for the subsidy to come into their account through DBT.

Okay. So all the states have moved to DBT because I remember some states were still not under...

No, no. Every -- almost all states, all states have moved into DBT. Only thing is some -- all states have different mechanisms, somebody has -- because their budget is limited. So there is no -- everybody doesn't get subsidy. So for example, Gujarat, they have a lottery mechanism. Everybody applies. And out of that, based on the budget available, a certain amount of people only get based on a lottery mechanism. In some states, it's a first-come-first-serve basis. That is another mechanism. So the disbursement by the state government, based on the budget, the disbursement mechanism is -- and of course, the quantum also because in Assam and all those states, wherein different schemes are there, like tribal scheme and all that, where the quantum is also different.

Okay. So the subsidiary-neutral product will probably help us with kind of the Chinese imports, it will help us to address that market?

Definitely. See right now, we watch -- two things we are doing. Like I said in the opening, to one of the questions. One is, we are trying to fill in the gap in the market. So wherever Chinese players were there, we are mapping on the geography of India, where all Chinese dealerships were there or dealers were strong and ensuring that VST presence is there in those markets. So if you see, in the last few months, our -- we have accelerated -- in quarter 1 alone, I'll give you the exact number. We have appointed more than 40 dealers in power tiller alone. I'll just give you the exact number, just a second. So power tiller, we are -- yes, so April, May, June, [Foreign Language] 28, 28 plus. So almost 41 dealers we have appointed in power tiller division up till July. So that is the kind of ramp-up we are doing in terms of dealership network. Second thing, as I told you, is the -- certain suppliers we are in talks with. We are in final stages of supplying to them. They were earlier 100% importers from China. Now we are in final stages of discussions for supplying to them.

Got it, got it. And just the second question is with regards to costs, we always had -- last few quarters, we had this prototyping cost, et cetera. So -- and you had mentioned that probably around the first quarter, that is this -- around this June month, most of those expenses would be done away with, the prototyping expenses.

Correct, correct.

So is that now done away, sir? And margins, is this -- I mean, once this volumes come back, do you think margins can hence look much better, and we go back to our earlier levels of, say, 14%, 15%?

Yes. So if you refer our, in detail, notes of accounts, notes to accounts, you will see that material cost per se has come down even compared to Q1 last year from 67.1% to 66.2%. But overall, it looks slightly higher because there is an aging and revaluation in physical stock posting that has happened. So overall, it looks at 67% against Q4 last year of 64%. But overall, last year was 68.5% for the full year. From there, we have come down to 67%. But if you look at material cost alone, we are at only 66.2% now. So like I said in the beginning or rather few quarters before, what I told you was the margins will normalize, and we expect this to further go down. Because of this COVID-19 situation, some of the areas where we had supply issues, we couldn't exactly follow the share of business process. We had to buy some items from slightly higher cost suppliers. So it doesn't fully reflect because nobody -- 4 quarters back, nobody thought that we would be in COVID-19 situation. But despite that, the material cost has come down. So I think this journey will continue. And next 2, 3 quarters, I think we will have betterment. And if this -- if we can get out of this COVID-19 situation, hopefully, by next year, I think we will be even better.

The next question is from the line of Shashank Kanodia from ICICI Securities.

Congratulations for a decent performance. Also appreciate, sir, that we are conducting our con call near to our quarter results. Sir, I have three main questions. Firstly, we had some amount of bad debts being provisioned in the previous year. So I just wanted to check, so large part of it is over? Or do we expect some run rate going ahead as well?

So as I said in the last call also there, we are following the policy. And all of you know that we have some outstanding towards subsidy given to the government, that has still not come. So we are provisioning for that. And there will be some provisioning in ongoing quarters also unless that subsidy amount comes in. So we are only -- the only thing that we are waiting for is that subsidy amount to come in. Now that is definitely going to come in, but because it's a government payment, but we don't know when. So we, anyway, are following our policy of providing for doubtful debt. And hence, we are going ahead for providing.

Okay. So what is the quantum of outstanding subsidy from government?

Subsidy from government is in the tune of about INR 12 crores to INR 17 crores, depending on -- tractors is about INR 8 crores or INR 9 crores, and tillers is about similar amount, something like that. Exact I can give you later.

Okay. And sir, I just wanted to check. So you gave a volume guidance of 10% to 15% for tractors and 15% to 20% of power tillers, right?

No, I didn't understand your question.

Sir, the volume guidance for tractors and power tillers for FY '21 is roughly 10% to 15% for tractors and 15% to 20% of power tillers. Is it?

Correct.

Okay. And sir, thirdly, on the power weeder, if you can share some time frame within -- when do we expect to start manufacturing? And what kind of volumes we expect this year or probably next year? And will it be a similar margin profile to the existing that we do?

Yes. So we have already started selling the product in the market. In fact, the quarter 2 onwards, of course, which we will share later with you, I'll give you the numbers as well, we have started. As far as manufacturing is concerned, in August onwards, we are starting assembly SKD in our plant. And then slowly, we want to move to CKD. See, remember, like I told you earlier also, today, we are operating without any physical contact. VST management and Pubert management have only met online. And we have been able to progress quite a bit. I would say it is commendable. I never knew we could do collaborations without even actually meeting each other. Because we know Pubert and Pubert knows VST. So there is a certain amount of comfort there. And hence, we have decided to go ahead. But precise date of complete manufacturing, I think, Mr. Pubert, who's the Chairman of Pubert, is expected to travel to India once the travel restrictions end. So I think -- I mean, I'm not able to give you the date or month for that. We are all waiting for that day when travel can start happening. So immediately after that, we want to take it up. So that is where we are actually.

Okay. And sir, power weeder as an instrument, kind of, cannibalize any of the functions that power tiller performs? Or is it a complete different set of applications?

It is a much smaller implement like -- it is more bought by people with 1-acre, 2-acre kind of land holding. So -- for orchids and garden or stuff like that and used mainly in orchards and if anybody has land holding between 2 to 5 acres, they will still prefer a tiller. And anybody who has bigger than 5 acre, 8 to 10 acres or bigger, will go for a tractor. And of course, depending on the crop, whether it is an orchard crop, it's a whole crop or it's a general field crop like maize or wheat, et cetera.

The next question is from the line of Mayur M. from BOB Capital.

Sir, just wanted your perspective. So I've been looking at this import curve from China, and it says that Chinese tillers have kind of 30% market share in the -- maybe last year, industry was about, let's say, 40,000 units, which increased, I'm saying, at about 12,000 units, could have come from China. And if this import is curved at 10%, which means more than 10,000 demand, even if Y-o-Y growth is kind of flattish, it is a like of 10,000 exclusive demand coming to domestic guys. And when I say domestic, you are a 50% plus market share. So wouldn't it be very obvious to believe that whatever difficult demand you would have got Y-o-Y, you would get an additional 5,000, means more and above that even if I consider only 50% of this number coming to you.

Yes, that is what we are looking at. But remember, there was a huge inventory lying with all these importers from China. So I think it will run out by September, October. I think it should completely run out. And then the real effect will be realized. And as I said, we're taking 2 steps. One is mapping dealership network and ensuring wherever a Chinese player was there, our presence, we have to ensure. So I'm not talking about a district or a state. I'm talking about a town where the dealer was there or not. So I might have dealer in, let us say, Bangalore district. But in -- for example, if the Chinese were present in, let us say, Whitefield area, I want to put up a counter in Whitefield area right now. So that is the kind of work we are doing, point number one. Point number two is we are in talks with a couple of importers, who wants to take supply from us. So we are in final stages of discussion.

Right. So I got this from you. So what I was trying to get was, when we are saying that these are two big opportunities for us that either we capture their bucket or we start supplying to guys, who are importing. I was just thinking that the additional number that comes on, mathematically, has been 25%, 30% kind of Y-o-Y growth into your tillers. So I was thinking that your guidance is kind of a little conservative when you said 15% to 20% growth only in the tillers. I just wanted to understand the link that put these together, that's all.

Yes. So let us hope for the best. I mean, yes, there is opportunity, and we are working on it. But I think roughly about 15% definitely looks feasible in terms of growth. See, because there are many factors at this point. We are in a completely unpredictable situation. On one side, there is supply issues. On other side, there is COVID-19. Third is we are grappling with this uncertainty in terms of what will happen to subsidies. So there are multiple issues the industry is facing today. So we are prepared on all trends, but how exactly we play out is very difficult to predict.

So sir, is it possible that with all these supply side issues in COVID [indiscernible] current 40,000 units? Or you're saying that, at least, the industry will grow, and then, of course, you will do much better than the industry agent.

My expectation is that the industry will grow simply because the low-end farmer, I mean the small and marginal farmer doesn't have any other solution. So I am expecting the industry to grow. Two reasons, one is what I said just now. And the other is I'm seeing a change in trend that nobody is waiting for subsidy. They're going ahead and buying. So that, of course, I have only 4 to 5 months debt at this point. So I needed to be sustainable. I needed to sustain because in the first quarter, as all of you know, the payment -- the minimum support price was good and the payment from the government also was good. So there were certain capital or money in the hands of the farmer. So will that sustain? Will that methodology of buying sustain is a question mark, which I don't have an answer to right now. Hence, I'm prepared with a subsidy neutral product, which will help him buy still if subsidy doesn't come.

Right. And so my last piece, so, i.e., is it significant that when you are saying a 15%, 20%, you are also looking at a similar growth for the industry or you'd say the industry will grow in a single-digit and then maybe you kind of outperform? How does the industry growth improve here?

One thing is definite is, we will be faster than industry because lot of the industry, who are there earlier is going to source from us. So we may not count it as our sales per se, but we will be doing the manufacturing for them.

The next question is from the line of Shiv Chanani, individual investor.

I just have a couple of questions, sir. One is on the tractor side. Given our low base, do you think the limiting factor for us right now is the capacity and supply chain and things like the dealer network and all? Or do you think the limiting factor is the demand?

The limiting factor is not the demand right now.

Right. So it is more around the capacity and probably the supply chain disruptions we are seeing right now?

Correct. Correct. Correct.

And sir, on this, how is the financing tie up for us? I mean, are we tied up with most of the banks, and NBFCs or?

Yes, we are. We have tied up with everybody. And in fact, we get good funding from all the financials in line with the market leaders, even in our higher HP. That is a big challenge for any new entrant into higher HP. But given our track record and quality of products, I'm very happy to say that most of the financials have given us a higher funding.

Absolutely, sir. So sir, do we have the plans in terms of ramping up the tractor business in a significant manner, maybe, I don't know, 6 months, 12 months down the line? I mean I'm just trying to understand how do we see this tractor business ramping up, let's say, from a 3- to 5-year point of view?

Yes. Definitely, we -- as I discussed with all of you earlier, we are putting up a new plant for higher horsepower tractors in Hosur, which will have a capacity of about 30,000 tractors. So we already have a capacity of our compact tractor is about 30,000 tractors. Now we are doing a lot of productivity improvement because the demand has -- after 2 years of low growth, especially our key markets, as you know, is Gujarat and Maharastra, now those markets are really growing. And we see that growth to continue for, at least, next couple of years because the reservoirs are full. This year's monsoon is good. The cropping is good. So we expect that demand to continue for 2 more years. So we are doing a lot of productivity improvements. In fact, we are shifting one of our implement lines out of our tractor plant to our Mysore Precision Component division, so that we can convert that line also for compact tractors. So a lot of productivity improvements, lot of capacity maximization. And as I said, the new higher horsepower tractor plant will be fully functional in quarter 4 this year.

Okay. That's great. And sir, are we looking for -- given that 30,000 tractors on our base will be significant, are we looking for like dealerships outside of Maharashtra, Gujarat? Or you think...

Yes, yes. We are -- as we said, we are rapidly expanding dealerships for tractors as well as for tillers, tractors. Definitely, we are focused more on the northern markets because the higher HP segments, we have never been present in those markets. So all those markets where we have not been present like UP, Maharashtra -- MP -- UP, MP, Rajasthan, Haryana, Punjab, all these higher horsepower markets, we are adding dealers now, and we are getting very good response at the moment.

Fair enough. Fair enough, sir. That's very encouraging. And sir, the next question was on the power tillers and particularly, this Chinese. Of course, I mean it's a big booster for us. But sir, in the past, what we have seen in some of the categories, I don't know whether it's applicable in tillers or not. But in some other categories, particularly, when the trade war happened in the U.S., what we have seen is that a lot of merchandise actually got routed through other markets, like Vietnam, and all. Do you think that it's possible in tillers that the Chinese product still finds it way routed through Vietnam or any other neighboring market.

That is unlikely because Chinese -- I mean, sorry, the Vietnam market has got strong power tiller players, and they also manufacture -- and this is a much larger product, unlike an FMCG kind of products. So I don't think that routing is easy. And even if they do it, the cost will climb up compared to -- so I don't think that will provide any distinct advantage.

Sir, what's the differential right now between the Chinese product and our products?

In terms of price, is it?

Yes.

About INR 30,000 to INR 40,000.

The next question is from the line of Aditya Kondawar from JST Investments.

Congrats on a great set of numbers. My questions have been answered. Thank you.

Thank you.

The next question is from the line of Jayesh Gandhi from Harshad Gandhi Securities.

So you said that farmers buy tillers and get subsidy. You don't have to do anything here now? I mean in DBT?

No, no, we have to help the farmers file for subsidy. The dealers help them file for the subsidy, but their money gets directly transferred to the customer's account, unlike earlier where the money used to get transferred to the dealer's account.

Okay. So whatever receivables currently you are having, has nothing to do with government receivables, right? I mean, the government is not your [ debtor ] currently, right?

No, no. Earlier subsidies, which were pending from government, it is still pending.

Okay. And can you give that figure, sir?

Yes. As I said earlier, no, like, INR 15 crores to INR 20 crores roughly between tractors and tillers. Some of -- mostly on subsidy-related receivables from the government.

Okay. And when you say that farmers are not even claiming subsidy, I mean they are buying in cash. I mean, how do you identify whether they are then claiming the subsidy or not? I mean, as...

We are filing it for them. As we said, the dealers are filing the subsidies for them.

The next question is from the line of Pritesh Chheda from Lucky Investment.

Sir, in terms of prototyping costs and the bad debts written off, what was it as a percentage of sales last year? And how much of reduction that should we see it in the forthcoming year?

Yes, material cost, I've already discussed in the -- around roughly about -- we have a reduction of about 1% to 1.5% currently on material cost per se. And I feel that it will go down further in the coming quarters. Secondly, on provision for doubtful debt, we had provided for about INR 4 crores to INR crores 5 in quarter 4. And this quarter, we have provided for INR 2 crores.

So I was actually looking in FY '20, so last full year, when you had this whole prototyping costs and a bad debt write-off, the sum total would be what as a percentage of sales. Would it be a 2%, 3%...

Yes, we'll calculate and get back to you.

Okay. And second, you gave the market size. So did you say 60,000 markets for tiller, in which 10,000 is imported, that's how it is?

No. Roughly the market size, depending on last year, it was only 45,000. So normally, the average industry sales for power tillers is about 50,000.

Okay. And lastly, sir, it's Maharashtra and Gujarat, which are the key consumers, right?

Maharashtra and Gujarat, are the key consumers for compact tractors.

And for power tillers?

Power tillers is Orissa, Assam, Maharashtra, Gujarat, Tamil Nadu, Karnataka.

Okay. Okay. And how many states in this are subsidy driven?

For tillers, all the -- mainly Orissa Assam; to some extent, Gujarat, Karnataka, are all subsidy driven -- Tamil Nadu subsidy driven; little lesser subsidy in Maharastra.

You said Orissa, Maharashtra, Assam, Karnataka, Tamil Nadu and AP. These are 4, 5 major states, right, in which 5 states are subsidy driven, which means bulk of the market is subsidiary driven.

Yes. No, no, power tiller bulk of 90% sales is to happen in subsidy only.

The next question is from the line of Saket Kapoor from Kapoor Companies.

First, if you could give what led to the rise in the other income components from, say, around INR 5 crores to INR 9.26 crores?

Yes. So there is a INR 7.7 crore -- due to the fair value increase is about INR 7.7 crores, out of this INR 9.26 crores.

The fair value of investments?

Yes. Compared to last year of only about INR 3 crores, fair value of investment, correct.

And that is in mutual funds?

Mutual funds, yes.

And sir, secondly, you did mentioned about that capacity utilization levels of 62% and the constraint on the component part, but then you also mentioned that the Chinese -- the import duty is expected to be on stream by October. So you are preparing yourself to meet the customer demand. So that will be job work done? How are you trying to do the math when you yourself are at constraints with the components?

Yes. So we are continuously working on increasing capacity at supplier level for components. That work is happening. So for example, if you see our sales volume in June, we had done about 2,600-odd power tillers, which in July, we have moved -- we have declared the numbers already. So we moved to about 3,040 numbers in July. And August, we expect to improve our that number also. So consistently, we are increasing capacity at the supplier level. So at the plant level, as I said, installed capacity, we are running much lower than the installed capacity. So there is nothing needed to be done in the plant. But however, at the supplier level is where the work is going on.

So, in that case, the margin profile will be very different from the ones which are manufactured at the plant and the ones where only the imported, the job work, is done. So how is the margin profile looking like in both the cases on the sale?

So we are not, kind of, compromising on margins much, in terms of supplying to other players. But yes, definitely, slightly, it will be lower for that, so that they can also be in the market and compete in the market. So that definitely we are looking at. We are on the firm belief that we need to create more players in the market for the industry to grow. So we are helping them, kind of, bring their own brands and compete in the market. So we're not giving them a complete tiller. So they will have their distinct look and feel of the product, while all the basic machine's material will be supplied by us.

But the numbers will be booked by us only? The numbers which you are booking under the power...

So the number, I won't -- that is why I said earlier, I will not project those numbers in my sales because...

No, no. I am not asking -- okay. Then how will be the revenue accounted for? I could not make sense of it. If you could just repeat for my sake.

Yes, we'll have to create the category of sales to OEMs or something, instead of selling -- paying at the sales in the market.

Okay. And you said that on top of 3,000, we are of the visibility of improving on the numbers month-on-month. This is what the take is from you?

Yes. Because we are improving the supplier capacity as of now, the demand is not an issue. Up till now, that is the visibility we have. We expect in September, for power tillers, slightly, because of seasonality, the sales will come down. So that is when we are looking at launching our subsidy-neutral products, which we have prepared.

Okay. And lastly, sir, on the AMC front also, sir, do that also forms a part of the business once the machine is sold and the spare part business, what is the breakup of the same?

No, spare parts, we have roughly about a INR 70 crore or INR 80 crore business. So there is no AMC because we give a warranty. I mean, like any automobile, tractors and power tiller has a warranty period and free services period. Like any car, we buy, there is a certain amount of kilometers. In cars and bikes, it is kilometers. In tractors and power tillers, this is number of hours operation. So we provide free services, and we take care of the service. And parts is a big business for us. We do about INR 70 crores to INR 80 crores of parts business, and we are continuing to grow that business because we have launched lubricants in through -- for our exclusive dealerships, VST-branded lubricants, we have launched. Also, we have launched lubricants in the aftermarket because there is a large population of power tillers, more than 400,000, 500,000 power tillers in the market from VST alone. So there is a huge consumption of parts as well as lubricants. So we have taken some efforts in the last 2 to 3 quarters to launch these products. So that is another area that we are focusing on.

And what is the revenue for this quarter and last year, sir, on account of the lubricant as well as parts...

Just a second, I'll give you, just a minute. Yes, move on to the next question till I take...

And next point is, sir, about the growth part also, sir. What are the factors that have made the tiller/tractor business conducive for us? And since we had a very low base last year, last year was bad for the industry and VST, in particular, also. So that is the main reason that we're seeing the growth visibility? Or are we contemplating the business altogether moving into different trajectory going forward, sir?

See, we are definitely, as we said, working on increasing the capacity on tractor. So tractor is going to grow. Another area which we are focusing on power tiller is we are expecting to take advantage of the import restrictions that has come in that I've already shared with you. The third important big growth lever that we are working on is on the power weeder segment, where we see the industry is going to grow exponentially. So we have tied up with the best in the world, and we want to manufacture those products in India and supply to the parent -- to the French collaborator as well to Pubert. We want to supply back to them also. So these are some of the immediate growth areas that we have looked at. Couple of things we are doing, we are increasing the product range. We are doing a major expansion of the channel. So these are the 2 levers that we are using to grow in all the segments. And the fourth area that we have looked at is the distribution business, which is the parts, lubricants, et cetera, where in first quarter, we have done about INR 17.8 crores of parts and lubricants, we have done about INR 2.55 crores. Against last year, lubricants, we have done only about INR 1.98 crores and parts INR 17.5 crores we did last year. So parts, again, supply side issue, as I said, component issue was there, so we could have grown much larger, but supply is still a constraint.

And a very small point on the Precision Component division at Mysore, sir. How is that division performing? And what is the road map since it has not contributed to that great extent.

So it contributes very little revenue as such because it's almost 70% of the material that is machine there. We move it to -- for our internal consumption. However, going forward, what path we have kept for Mysore is while we continue the machining center, because both our power tiller and tractor plants are basically ATPP plant, that is assembly testing, painting and tacking kind of plans. But the real machining center for VST is at Mysore, where we have all advanced machines, some Mazak machines, [indiscernible] machines, et cetera. So we are not stopping that. It will continue to be our engineering strength. However, we are also starting to focus from Mysore on precision implement. So that is another new growth area, but it's very -- at a very, very initial stage, but you will hear more about it in the future.

Right. And last is on the minority shareholder value creation idea, sir. If you could have that thought process and when is our AGM scheduled since the companies have increased and if they are on the call. That could be -- what are our value creation ideas for these shareholders, sir?

Yes, the best valuation is by better performance, I think. So that is what management is focused on doing. And as you see on all parameters, if you -- even if you look at the balance sheet, it has become much, much healthier than what it was earlier. So I can tell you the company assets, it is a debt-free company, and the cash holding and the cash equivalent. And if you'll go through the complete financial report in detail, you would have seen all of them have gone up. So we are -- the balance sheet has become much, much more stronger than what it was earlier. So I think this is definitely what we are focused on.

Right. And on the AGM part, can you update us?

Yes. AGM this time is most likely on a video call. So we will let you know more in detail about.

Right, sir. Thank you for all the descriptive answers. And we should look for continuity of our performance, sir. That is what the key takeaway should be the highlight.

Yes, definitely. Thank you.

Due to time constraints, we will take the last question, which is from the line of from Kaushik Shah from [indiscernible] Securities.

Yes. Most of my sites have been answered, sir. But I just have one clarification. Sir, you alluded about VST supplying, sort of, semi-built tillers to people or suppliers, who were importing earlier. So from what I tend to believe, from your answers earlier, this will be at a lower price point compared to the VST tiller brand, right?

Yes, it will be at a lower price point compared to the VST tiller brand because the package itself will be different.

Sure. And then there, sir, are we contemplating about ramping up of volumes in terms of -- because there is a market for our taking. So what are your thoughts on the kind of growth that we can see in that segment?

Yes, definitely, like I have repeatedly said that we are focused on taking full advantage of this opportunity. First is we want to fill the gap in the market at all. So we don't want to leave anything to chance, and we are not waiting for the customer to come looking for us. In fact, we are going to them, looking for them. So that is why I said that any geography where a Chinese product was being sold, I'm ensuring that VST's outlet is put up there. So that is why a rapid expansion of dealerships is happening, point number one. Point number two, all the supplier constraints that we are having in terms of ramping up, one by one we are removing. And I think -- but everything is not in our hands, as I said earlier, because much of it is due to the COVID-19 situation. So that I can't do much about. But other than that, wherever we felt that there is a supply constraint, we are ensuring that, that is removed.

Thank you. I would now like to hand the conference over to the management for closing comments.

No. We will be closing, I think.

Thank you, everyone. Thank you very much.

Thank you. On behalf of B&K Securities, that concludes today's conference call. Thank you for joining us, and you may now disconnect your lines.