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

Yes. Monarch is an electric and autonomous tractor manufacturer based in California, United States of America. We have a supplier technical relationship with them. We supply the transmission, axles and all the parts other than the electric batteries and motors and the software to Monarch. And we intend to work together with them to be ready for electric tractors in the Indian market in the future.

Okay. So do we see any opportunity in terms of revenue, like, what is it that we can supply in maybe next year '22 or '23? Or it is just a technical collaboration where we are preparing ourselves for the EV launch?

There is a certain cash flow, which has begun, but I will be able to give you more on it probably next quarter.

Okay. Okay. And sir, last question. Just wanted to know what would be the CapEx number for next year, FY '22?

Roughly, about INR 50 crores.

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

Sir, I just wanted to know, in 9 months, what is the tiller volumes which we did in tractor and others and the growth number? And what is the expectation for '21 now with the same in volume?

Just a second, I'll just give you the numbers. Year-to-date, power tiller -- yes, power tiller, we had done -- Q1 -- yes, YTD December, power tillers is at 19,844 numbers and tractors is at 6,950 numbers, YTD December.

And others, if any?

And spare parts, we have done about INR 63 crores. And there is some other miscellaneous revenue of about INR 30-odd crores.

Okay. And sir, the growth in tillers would be what in the 9 month -- over 9 months last year and tractors volume growth over last year?

Yes, tillers, we have grown 38% and tractor we have grown 32%.

Okay. Okay. And what would we expect -- volume expectation now for the full year for tillers and tractors?

We should continue -- I don't see any reason why we would continue on the rate of growth, and we should continue at the same rate of growth.

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

Sir, can you touch upon regarding the higher-HP tractor, which all the states we have expanded in this quarter? And what is our pricing? Are we still priced, like, 3% to 5% lower than the leaders at that region? Or how is it going on?

Yes. So we have launched our tractors in more than 85 dealerships across the country now, the higher horsepower tractors. So we are present in most of the markets now. We may not have launched in all the dealerships in a given market, but selected dealerships, we have launched in all markets. The pricing we aim this product to be in the value-for-money positioning. So in the marketplace, there are premium positioning tractors and value-for-money positioning tractors. So we are in the value-for-money positioning tractors, and we are very competitive in this space.

Okay. Sir, when you say value for money, so -- I mean, like, just to know whether these products will be having a lower margin than the historical compact tractors and tillers of our -- I mean of our company?

Not because of the positioning, but these are initial days of the product, and hence, comparatively, there is a lower margin because compact tractors have been around for decades now. So -- but I don't see any reason why the higher horsepower tractors in due course of time will attract the same amount of margin.

Okay. And can you just talk upon your road map to INR 3,000 crore gross revenue? So -- which you were touching upon in your annual report? And is it -- I mean how do you see it coming going forward?

Yes. Definitely, that is the vision that we have set for ourselves. So we will be growing on a year-on-year basis. The next milestone is to cross the INR 1,000-crore mark. And then on we have put milestones for the company, the target numbers to be achieved every year. All the projects have been put in place, and we'll be working on that.

Okay. And as you said that this year, you expect the tiller industry to end up around, like, 50,000 units. So if you look at -- what are -- I mean how is the subsidy for this year, sir? I mean like you were previously telling that only Assam state has given the subsidy. So are there any states that's added up in the subsidy? And...

Karnataka also has given subsidy. Rest of the states have not given subsidy. Assam and Karnataka have been the ones who have given subsidy this year.

Okay. Sir, as you touched upon sometime back, like, 35% to 40% of your sales now are happening because the farmers are buying it because of farm mechanization, and they are okay getting the subsidy later. But if these continue to happen and if the subsidy gets delayed, so are there chances that we may -- I mean the tiller demand may slow down because if this continues to be, like, the subsidy getting delayed from the government and because of fiscal deficit, so how is this happening? Like if I'm not wrong, they always have a particular setup, like, this year we will be giving for this number of tillers, right? Or the tiller volumes for every year of subsidy are higher?

See, what we have seen over the last 4, 5 years is the subsidy has been coming down every year. In some states, it was declared but still not given. And even in the states which we are giving, like, Karnataka and Assam, compared to earlier years, the quantum has come down drastically. So -- and the farmers have also realized it. What we are seeing is the farmer is coming and buying the power tiller irrespective of the subsidy announcement. But that does not mean he does not apply for subsidy. He applies for subsidy, but they're not getting it. And people have been waiting 1 year, 2 years, 3 years also, but they have not got it. So it will become a kind of accepted fact in the market. At least that is what we find when we talk to farmers that they also feel that subsidy may not come. And hence, they are going ahead with the purchase. That is why the tendency is to feel that this trend will sustain.

Sir, in that case, going forward -- I mean then -- I mean I couldn't understand the logic of like subsidy-neutral tiller because, as you said, going forward, farmers also believe that the subsidy will come down or eventually move out. So in that case, do you think that the requirement of a subsidy-neutral tiller is there?

May not be. That is why we have not pushed beyond 2 states and I have not pushed too much volumes on that product. While we were ready to go full throttle on this product to make up for subsidy because to our pleasant this thing, we found that the trend is changing and there is no need for us to probably push the subsidy-neutral product. But we are ready in all aspects, just in case. But that is not the end of the story for the subsidy-neutral product. That has enabled the company to look at markets like Bangladesh and fight with Chinese products. So these are the various options that are opening up for the company because we have a low-cost product today.

Okay. And what could be our export volumes, sir, for YTD or 3Q because you have touched upon that...

This year we have made a beginning. We are around 150 numbers at this point. But we -- this is the first year we have seen export volumes go beyond 100, but I expect these volumes to grow in the coming years.

Okay. And this 150, which you have told is in tillers, right?

Tillers. Tillers. Tractors we do much higher volumes.

And tractor, which are the regions which you go onward, sir?

We mainly sell to Western Europe. We sell in Germany, Belgium, Netherlands, France, Spain, Portugal. So these are the markets we sell to. This year, we have entered into Eastern Europe, and we have consolidated in Europe this year. And we have also entered -- we have made some beginnings in Africa this year. So the export volume has been good. We have done about 450 tractors until December.

The next question is from the line of Ritika Gupta from Aequitas Investments.

Sir, I just missed the numbers for the tillers and tractors in value terms. Could you please give that breakup for this quarter?

For this quarter? For this quarter, for power tiller is INR 97.3 crores; tractor is INR 82.33 crores.

Okay. And sir, what kind of growth can we expect in volumes for FY '22? Can we expect this 30% growth that we witnessed this year?

We will be working towards, I'm expecting, a 15% to 20% growth.

Okay. And sir, we mentioned that our first milestone for our vision statement is INR 1,000 crores revenue. When do we target to achieve that by?

Next year.

The next question is from the line of [ Siddhant Maheshwari ], an individual investor.

Am I audible, sir?

Yes, yes, yes.

Sir, my question is regarding the opportunity size in the industry as well as for the company. Sir, if I look at the total tiller volumes for the company in the last 8 to 10 years, volumes are ranging between 15,000 to 30,000, broadly. So sir, what could be the reason for this stagnant volume? Is it -- I mean what I mean to say by stagnant is that volumes are increasing in 1 year and then down by a few percentage and then again increasing? So is it because industry has already reached to a high penetration or industry is shifting towards small HP tractors?

Yes. So there are many factors for an industry, but predominantly, the power tiller industry has been affected by 2 factors. One is the subsidy and second is retail finance availability. So in the earlier years, the business would happen only if the subsidy is announced. And going forward, that dependency is reducing, and we feel that the availability of retail finance will be the critical factor for industry growth. And the volatility of the industry is also based on these factors. Some years, the subsidy given out was very high, and that year, we saw the industry volumes grow. And the year after that, if the industry -- I mean the subsidy was not released, then the industry has [ fallen ].

Okay, sir. Right. And sir, just one small clarification. Of the total volume of tillers, what percentage of the volume on an average in the last few years is supported by government subsidies?

Earlier year, this was more than 90%.

And in the current year, it could be significantly lower than that?

Current year, it will be much, much lower. Let us say, roughly, 50%, roughly, because end of the year figures might be very different.

[Operator Instructions] The next question is from the line of [ Dipen Shah ], an individual investor.

Yes. Several questions have been answered. I just had one clarification. The tractors which we will produce on a contract basis for Chinese companies, will that number be a part of the volume or we will get only the service charge or the manufacturing charge which will be added to the income?

No, we are not producing. I think, first, I'll clarify to you. We are not producing for any Chinese companies. What we are doing is, people who are importing from China, we are supplying to them now. The second part is, yes, we have a certain margin, cost plus margins we have in that transaction.

Okay. So these tractors will not form a part of our volumes going ahead, right?

This is for tillers.

Yes. So this -- the 4,000 tillers, which we are talking about, 2,000 plus 2,000, will that form a part of our volumes going ahead? Or will we just be getting the manufacturing fees [ and cost plus ] for us?

No, no, no, it will be part of our volume.

It will be part of our volumes. Okay.

But it will not be a part of our brand, just to clarify it to you. The volume will be ours, but the brand will not be ours.

Understood. And from whatever you said till now, can we assume that in the next quarter or the quarter after that, we will have some margin improvement because the employee cost will stabilize at a 1.5% lower level, and plus, we will get the benefit of the price increase which we have taken in January?

See, we are focused on growth, and we will be working on -- I mean given normal circumstances, 12% to 14% is what we are looking at in terms of margins.

[Operator Instructions]. The next question is from the line of Hitesh Bhargava from B&K Securities.

Sir, apart from monsoon, what do you think will be the key risk for farm machinery segment in FY '22?

I think the cash flow into the farmer's hand is the second biggest issue every year. For example, payment from the sugar mills for the sugarcane farmers, support from the state governments in terms of minimum support price for cereals and the payment in time for that. These things will affect the industry.

Okay. And as you touched upon, like, retail finance availability will be critical going forward for tillers...

Structurally, yes, [indiscernible].

Yes. So can you touch upon who are our partners and how are we working with these financial institutions regarding this improvement in retail finance availability to farmers?

Yes. We have tied up with all the finance companies and nationalized banks and private banks. And we have created -- in fact, we are in talks with some of them to promote more power tiller business because that is the area where finance availability is far and few. So we are working with some of the NBFCs to promote more power tiller finance.

Okay. And sir, you were touching up -- I mean you were telling about this precision implements and power weeders and all. So what exactly is the market size of that presently? And is there any like -- is it more to do with unorganized market or there are some stabilized -- I mean some organized players already in those segments?

See, power weeder market is -- 120,000 is the industry size with unit price of about INR 40,000. So that is the power weeder market. The rotary -- rotavator market, which is attached on -- attachment on a tractor, it is -- about 300,000 to 400,000 rotovators are sold in this country. Largely, both these are in the unorganized segment. Power weeders are largely imported from China and sold in India. So we are following a methodology of introducing power weeders manufactured in India.

Okay. Sir, you also touched upon like we were looking at Bangladesh as one of our key export markets. So what is the market size opportunity there? And I mean, you said, we are competing against China. So how you think that this will help us going forward?

Yes, Bangladesh, Nepal, Sri Lanka, Myanmar, predominantly, these markets have been Chinese dominated. The industry size will be anything between 60,000 to 70,000 power tillers. So these are the markets we want to enter. This year, we are making a small beginning. We expect that volume to grow in the coming years.

Okay. And like in next 5 to 6 years, how do you see that tiller volumes to be, like, I mean, in the long term? Because you said that there are -- structurally, there are many changes happening in the tiller industry, like, subsidy coming down and retail finance availability getting critical and cash flows of farmers is also critical. So in the next 5 years, do you still see, like, how the last 5 years were, like, a stagnated way? Or you see that the volumes getting from 50,000 to some 70,000 level?

See, in the next 5 years, 60,000, 70,000 is possible. So the CAGR will be at about 4% to 5%, is the expectation from power tiller industry. But the power weeder industry is where the CAGR will be at about 20% to 30%.

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

Sir, can you share what is the ballpark realization for a power weeder?

Ballpark what?

Realization, the selling price of a power weeder?

It is between INR 40,000 to INR 60,000.

Okay. Okay. And sir, on the power tiller volume front, so this year, we will end with around 50,000-odd units. So next year, we'll have 15% of organic growth and plus 4,000 units of [ full-fledged ] manufacturing. So is this understanding correct?

More or less.

Right. Right. And lastly, sir, if you can share the power tiller and tractor revenue figures in rupees crores for last quarter as in Q2 FY '21.

Just a second. Total revenue for power tiller Q3 is INR 97.3 crores.

Sir, I was asking for Q2, the last quarter...

Q2?

Yes.

Q2 is INR 111.85 crores.

And tractors?

Tractors -- just a second. Tractors, Q3 is INR 82.33 crores, and Q2 is INR 86.02 crores.

As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you very much, everyone, and look forward to interacting with you soon after the next quarter. Thank you.

Thank you. On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.