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

Good day and welcome to the Q2 FY '22 Earnings Conference Call of V.S.T. Tillers Tractors Limited, hosted by Batlivala & Karani Securities India Pvt. Ltd. [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, Aman. Welcome to V.S.T. Tillers Tractors Limited Q2 FY '22 Earnings Conference Call. From V.S.T. Tillers Tractors Limited management, we have with us today, Mr. V.T. Ravindra, Managing Director; Mr. Antony Cherukara, Chief Executive Officer; and Mr. Pankaj Khemka, Chief Financial Officer. I'll now hand over the call to V.S.T. Tillers management for their opening remarks to be followed by question-and-answer session. Over to you, sir.

Yes. Good evening, everyone. And this is Antony Cherukara, CEO of V.S.T. Tillers Tractors Limited. And with me is Mr. Ravindra, Managing Director of the company; and Mr. Pankaj Khemka, the CFO of the company. I'm very happy to share with you the Q2 results of the company and the H1 results. So in Q2, we had a revenue of INR [ 223.46 ] crores which is a year-on-year growth of about 6% and an operational EBITDA of INR 38.39 crores, which is a growth of 7.37% year-on-year. And the operational EBITDA is 16.44% of revenue. PBT is at INR 42.82 crores, which is a growth of 4.54% year-on-year. And as a percentage of revenue, it is 13.5%. And cumulative H1, this financial year, the [ stocking ] revenue has been INR 427.06 crores, which is a growth of 16.5% year-on-year. And we operationally declared INR 63.78 crores, which is a growth of about 18% year-on-year. And as a percentage to revenue, the operational EBITDA is at 14.93%. And the PBT is at INR 74.02 crores, which is [ 16.7% ] of revenue, and this is a growth of 19.62% year-on-year. Now coming to numbers. In Q2, in power tillers, we have done a volume of 8,626 numbers vis-à-vis last year volume of 7,924, which is a volume growth of about 12% year-on-year. And in the tractors, we have done 2,325 numbers vis-à-vis last year of 2,751 numbers in Q2. And in comparison for H1, in H1, tractors, we have done 4,373 tractors vis-à-vis last year of 4,517, and -- which is a drop of about 3%. And in power tillers, we have done a volume of 15,355 in H1 vis-à-vis last year of 13,110, which is a growth of about 17%. We can move on to questions now.

[Operator Instructions] The first question is from the line of Kaushal Shah from Dhanki Securities.

Sir, if you can also share -- you've shared the volume for both tiller and tractors. If you can share the revenue numbers also.

Yes. Give me a second. You want the product-wise revenue numbers, right?

Yes. Yes, yes.

Yes. So for power tillers, the revenue is at INR 125.38 crores for quarter 2 vis-à-vis last year, INR 111.85 crores. And for tractors, it is at INR 84 crores vis-à-vis last year of INR 86 crores.

Right. Sir, if you can -- in the tractor segment, if you can maybe add some more color on how the market has been. Apparently, the South market did witness some growth. So have we gained any market share? And how -- and what are the numbers that you've done in the higher HP segment?

Yes. So I'll come to that. The market has been okay. I would say it has been kind of flat for -- I mean complete export you look at it, it is from kind of flat, especially the month of September and October, I would say, due to festival. The expected volumes did not come up, and the industry also has not grown much in these 2 months. For us, in the compact tractor segment, the industry has not grown. And that is one of the reasons that we have not been able to grow in this segment. As far as higher HP volumes are concerned, in Q2, we had done 230-odd numbers of high-HP tractors. And in H1, I will give you the figure of as a whole. So it is roughly about 400-plus tractors we have done for H1.

Right. And sir, we were targeting about -- if I remember that correctly, about 1,000 numbers in the higher HP segment for the entire full year this year. So we are on track...

Oh, we will definitely cross that number.

Sure. And sir, 2 more questions. One was on the associated products like the weeders, and we've added quite a bit -- a number of new products like rotavators, et cetera. Any -- maybe some more color on that as to how these new products have done in the last, let's say, last quarter? And also if you can maybe share the outsourcing meaning where we were supplying to dealers who were earlier dealing with Chinese tillers. So what is the kind of numbers that we have done in that segment?

Yes. So in this financial year, we have done about close to 900 numbers outsourcing to those who are -- OEMs who were importing earlier from China. And as far as the power weeder segment is concerned, we are seeing good growth. And this year also, we are seeing good momentum in the growth of that segment. And as we have said that we will be closing more than 4,000 numbers this finance year. We are quite on track to do that.

[Operator Instructions] The next question is from the line of [indiscernible] from Asian Market Securities.

So I'm just trying to understand, so there has been this ban on Chinese imports. And from what I understand, this is a 50,000-odd industry, right, 50,000-unit annual industry, the tiller industry in India?

Yes. Yes.

And your presentation is like you would have about 54% market share. What I'm trying to understand is when this ban happened, I was actually expecting that you would have actually gained quite significantly out of the Chinese share. I believe they were at about 25%, 30% of the market share?

Earlier year, yes, they were at 25%, 30%. But I would say towards -- after 2015, the share would be at about 15%, 20%. So let's say about anywhere between 5,000 to 8,000 numbers annually are the kind of numbers the organized players in -- organized [indiscernible] .

So what -- so would we be able to -- would we have been like captured more than 50% of that share that actually was left out?

Yes. I mean, on an annual basis, we will be doing that, yes.

So is it safe to assume that your market share by the end of the year should be well above 60% if the market size is just the same?

Definitely, the market share as well to date is more than [ 50% ].

Okay. Great. And sir, one more thing. Sir, I also believe you are sitting on a 60,000 capacity for tillers and about 36,000 for tractors, right?

Correct.

And at this point, of course, production is well below limits. So there is no need of immediate CapEx for any of these products?

You're right.

All right. So this -- so when I -- your annual report also says that you have a vision of about INR 3,000-odd crore as a 5-year vision for 2025. But that actually seems like a very big number compared to our current numbers. So are we looking at any kind of inorganic growth also coming this way? Or this is purely we believe to be an organic growth leading to that kind of number?

See, we have clearly laid out a strategic direction where we will be investing in multiple product lines. Like I have said this before, areas that we are looking at, number one is to move from just being a power tiller company to a small farm mechanization company. That is why we have got into power weeders and the brush cutters and the like of equipment. And that is growing significantly, and we believe that it will drive growth in the small farm mechanization space for us. Second aspect is gaining leadership in the compact tractor segment. So we have launched a couple of products this finance year. We will be continuing to launch more products in this space, wherein we will be able to gain volume in that segment. We believe that this segment will continue to grow, although currently, that industry is not showing growth at this point in time. But as the raw crop and horticulture growth happened -- happens in this country, which is happening, we are sure that the industry is going to grow, and we will maintain our leadership there. Third aspect is the higher HP utilization that we have spoken about. We have put that capacity for higher-HP tractors. So the first task is to ensure that the capacity utilization is achieved. That is where our joint venture with Zetor also has come in place, and we'll be launching those products next financial year. Number four is what I spoke about is the investment in the implements business. We have started that business. It is initial days for us. And it is also growing rapidly, and you will hear more on that front from us in the coming times. And the number five, what we are looking at is the distribution business that we are starting. You will hear more from us in the coming quarters on the distribution business. Number six is what we are looking at investing in the newer technologies, where, again, today, we have also announced we have increased our investment into Zimeno Inc., which is an electric driver-optional U.S.-based tractor company. We have increased our investment in this quarter. We have made the announcement to the markets today. So that is our multipronged strategy in terms of growth with V.S.T. So I mean, definitely, your point is if you just pick on to power tillers and tractors alone. Definitely, our region cannot be achieved. So that is why we have multiple areas that we are working on to achieve this growth. And secondly, to answer your second part of the question, are we open to inorganic growth? Yes, we are very much open to inorganic growth, and we are looking at sound opportunities that will come up, which will align with our strategy and growth plan.

Great. And if you allow me, one more question. So I think this is something pretty interesting. Just that when you say you've increased your investment in the U.S.-based company, will that mean that the returns on those investments will actually form part of other income and will fall below EBITDA for you? So when it can add to your earnings, it may not add to your top line growth?

No. That our investment primary is not from the angle of financial returns that we are looking at. What we are looking at is strategic returns in terms of technology availability. Our commitment to Monarch as a supplier, we are already supplying certain critical components to Monarch, this electric autonomous tractor. So we would like to continue the relationship and strengthen the relationship and kind of bring that technology into India at an appropriate time. So our target is not financial returns. Our basic idea of this investment is strategic. And of course, as a consequence of financial returns coming, we welcome them.

[Operator Instructions] The next question is from the line of Devanshu Sampat from Yes Securities.

Two questions regarding the efforts that -- I just want to understand if the company doing any efforts in these aspects. So one is on the rental business. Is it directly -- directly, are we looking at this? And secondly, when it comes to digital adoption that is happening within rural India especially, so how are we looking to leverage on that or what are plans to tap that area?

Okay. And to answer question number one, we are not looking at rental business. Coming to question number two, on digital, we are doing a lot of work. And the first task has been creating the digital infrastructure within the company. I think in the last 2 years, we have been focused on that. We also have HANA for our ERP infrastructure. We looked at automizing -- making our complete operations paperless, which we have already completed. And now we are -- in the coming quarters, I think we will be able to share more with you. And I think it's not the right time to kind of share. Definitely, one thing I can tell you is digital is one of our key drivers or enablers of growth in the future, and we will be at the forefront of it.

Okay. Okay. And so if I look at the balance sheet, there seems to have been an inventory pileup. So can you throw some light on that?

Yes. We have increased inventory about INR 30 crores to INR 40 crores in this quarter, which is the festival season, as you know. October was festival, so -- and November also is a good period. And we might continue this inventory update quarter 3 and then taper down. See, we work on something on -- something called theory of constraints for the supply chain model, which we adapted almost 100 years back, so -- wherein we manage the inventory by methodology for buffer penetration and replenishment. So what that means is if the season is coming you increase the buffer and increase the inventory. And once the season is over, you reduce the buffer and kind of reduce the inventory. So you will see this dynamism on -- of an agility from the company going forward, and it is very consciously done.

Sure. Sure. Okay. Two more questions, if I may. So is there any -- would you like to revise your margin guidance going ahead? Because in this tough quarter, so it seems that we have sort of been on the higher side of what our guidance was.

So I continue with the guidance and close to the upper end of my guidance, I would put it that way, is 14%. So see, as I said, I am focused on investing for growth, and you will see that happening more from the company. So the guidance remains the same.

Sure, sure. And then last question, can you provide some update on what's happening with the investment that we have done with this U.S. company in terms of like -- you said you're already supplying to them. So if you can throw some light on how much it is and maybe if you can share a sense of what the contribution may be, say, 2, 3 years down the line.

Yes. So these are initial days. We have made a Series A investment earlier, and now we have made a Serious B investment into Monarch or Zimeno Inc., as the parent company is called. Now we are working with them in terms of -- we have signed a master services agreement on product development, and we are working totally with them on the product development, and the various trials are going on. And we look forward to developing this work with -- into a supplier partnership in the future.

You mentioned this before this that you have already been supplying parts to them. So is there a sort of...

It is product development and supply that we are doing. But regular supply and volume business may happen in the future.

Can you give a sense of what the -- what Monarch's plans are or what the expected sort of business is? Is it -- have they already started selling? Or is it going to scale up now?

Yes, I can definitely share what they have already put out there in the public domain. I will say this is a driver-optional electric tractor, which has got autonomous capability. That is why it is called driver-optional.

No. No, I understand what they do...

Yes. So what we do is what -- I'm trying -- I'm getting there. So what we do is we supply them the drivetrain and the camera. The sensors and the software are collecting by Zimeno, Inc. in the U.S. They have an assembly line there. And then they finally roll out the product and supply to the customers. So they have not begun commercial transactions yet with customers, which I hope they will start sometime in the next calendar year. So that is where we are at this point in time.

Our next question is from the line of Sonal Gupta from Rent Mutual Fund.

Just on -- I mean, the margin front, the raw material cost seems to have gone down by almost 330 basis points quarter-on-quarter. And so can you tell us something like what exactly has changed? What's driving the decline because...

Raw material ports and coal has gone up for all of us. However, in our case, what we have done, we have been able to manage not entirely, but to a large extent, through cost reduction and various cost management that we have been able to do in the company. Also, we did a price hike at about 3% to 4%. So to say raw material costs have gone down may not be entirely right.

So the price hike was affected in this quarter? Is that the way to look at it?

Yes. Yes. In Q2, we had a price hike, yes.

Across both power tillers and...

Yes. Yes, yes, you're right.

Okay. And also, I mean, like just on the overall market -- sorry, could you share the parts revenue also for this quarter?

Yes. Just a second. I'll just go back to the revenue slide. Yes, part, we have done for the quarter 2, we have done INR 22 crores.

INR 22 crores. And sorry, so just coming back to the -- I mean we've seen -- like you've also made a remark in your opening comments that the tractor market demand has been more subdued. And we did see that, at least in volume terms, the tractor volumes have come down on a year-on-year basis. So could you just talk about both the tractor outlook as well as the power tiller industry volume growth overall at the industry level and how you're seeing things?

Yes. So at the industry level, the last couple of months have been particularly subdued, as I mentioned before. And we as a company operate in the compact tractor segment, which is a 90,000- to 100,000-tractor industry out of the 1 million-tractor industry that is there. And in the higher off-core we have entered only last year, and the growth is happening as per plan in the higher off-core segment. So overall, we feel that this year, the growth of the industry should be in single digits. And to be around the mid-single digits, 5% to 6%, is the estimate that is out there for the industry. But it will also depend on how the climate is and how the monsoons are behaving. And right now, we have a problem of excess rain in South, which could lead to some problems if it continues for a couple of weeks more. However, I think overall, the reservoir layers are high. The minimum support prices are in place, although the cash flow into the farmers hand has not yet begun. I hope for November and December that would happen, and that would create some buoyancy for the industry and should be able to come out of the lull that we have seen in September and October.

Right. So in that context -- so like you already alluded to it, so we -- but we don't really have an issue in terms of higher channel inventory even though the festive season has been more subdued?

We don't have channel inventory. As I've said before, we work on theory of constrained supply chain model. We work on consumption, and we don't do push sale. So in that sense, our inventory is very much under control at the channel level. And you will see slightly higher inventory at the company level. That is what we have seen in the balance sheet this time. So that is a conscious decision, as I said before. And once the season is over, we reduce the buffer that is required, and the inventory comes down again. So that is how we manage our -- so there is no inventory buildup at the channel level.

Got it. And sir, could you share the Q1 -- sorry, Q2 number for B2B sales for power tillers?

Right. For Q2, and I've said the number is roughly around 900 numbers for H1 for B2B. I will -- later on, I will say what exactly is the number. Just a second. I think I have the number here for -- no, no. For the OEMs not. I'll just get that to you in a minute.

Sure. No, my question was more from the point of view that even like we're seeing a similar trend on the power tiller side as was on the tractor side, again, the demand is subdued?

Yes, demand is subdued, but the growth in power tiller is driven by V.S.T. So the industry is -- like we have 60% market share. So what we are doing right now is introducing newer products. We have launched the [ 16ST ] earlier. Now last quarter, we have launched another new product at the [indiscernible] level. So that is getting good response. So we expect -- like I have said this before. This year, we should end up with around 20 -- anywhere between 20% to 30% growth in the power tiller segment. And we should be around 10% to 15% growth in the tractor segment. So I am sticking to that same number that I've said before on these 2 segments.

Yes, sir. No. So that is where I was coming from because -- if you look at the first half growth -- and I mean like clearly, Q1 was a bit of a low base last year. But beyond that, like we've seen a substantial slowdown in Q2. So your 30% growth in power tillers looks quite aggressive in that context where we are in Q2.

Yes. Because the seasons are still on for power tiller. The -- big crop number November-December season is pretty big for the power tiller industry. So we are quite optimistic on achieving this growth that I've shared with you. Actually, we are already at 17% growth. So achieving 20% plus and being closer to 30% is, I think, still achievable.

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

Sir, and going back to the same question which [indiscernible] has asked. So if you look in tractor segment for October, we have around 5%. But for the full year, you are saying that we are targeting a 10% to 15% growth. But then if you look at the commentary of other players or also, if you look at the [indiscernible] of last year, which is very high base and then the base is lower because we have not able to be a growth. But in the second half, how come -- why -- I mean, how the confidence is like we are able to do very high growth and reach 10% growth rate of full year [indiscernible] ?

Our base for last year second half is pretty low. I think that answers the question.

Okay. But -- okay. And until the also last 2, 3 months, if you look at even October is one of the very strong seasonal month. But we were able to do only 1,800 units. So is October...

No, October is a very strong month. For power tiller, it is not driven really by festival. So power tiller, you will see Q3, end of Q3 and early December, January, largely the bigger season for power tiller.

Okay. And in this year, did you see anything on the subsidy spend from the state government, any improvement from last year? I mean, is that also going to help you?

See, we have not seen any improvement in subsidy, but there is some talk in the Northeastern states and in Karnataka, but we are not sure of that. And this guidance is not based on subsidy coming or not coming. And the 17% growth of H1 also is not based on subsidy. So...

Okay. And regarding your network expansion, how did our network expansion has been in 2Q, both between India and outside India?

Yes. So we have done roughly about 60 dealer additions in the tractor space. So we are over 320 dealers in tractors right now. And we have done 157 dealers in the power tiller space. We are having more than 530 dealers now in power tillers. Like I've shared with you before, our target is to get to 1,000 number of dealer network in power tiller segment and at least 700 to 800 numbers in the tractor segment. So we still have a long way to go.

Are we seen in different geographies or in existing geographies, I mean, the major lean tractor [indiscernible] ?

See, in tractor segment, we were never in the north. So we are trying to expand in the north with our higher-horsepower segment coming in. So that is where we are having higher growth of dealerships. And also, we are -- in the markets where we have a strong brand, which is namely the West and the South, we are adding certain areas where we didn't have adequate coverage. We are adding dealers there as well.

Okay. And one last question. This is from [ P&L ]. Our other expenses in this quarter has gone up sequentially. So is there any one-off? Or this is the run rate going forward?

No. See, I'm sure you would have looked at year-on-year basis. So if you look at last year, it has been a quarter where the travel didn't happen much at all in last year Q2 because of COVID and all that. So this period was different. So the advertising, sales promotion expenses and the traveling expenses were quite normal. So in fact, I am happy that we were able to manage our costs and were able to pass on a certain price increase and able to manage our margins despite the fact that we had a commodity inflation ranging between 6% to 8%, and also the fuel costs.

Okay. And what is the commodity inflation you are seeing in this quarter, sir? I mean you said last quarter, we have taken 3% to 4% price hikes. And now you said that 6% to 8% is the impact. So what was the impact on this?

Yes. As of now, we have seen kind of a mixed situation. That is in certain -- steel, the prices have tapered down. But in certain areas, it is -- like in [indiscernible] it is still a little high, and we don't see much movement on the other commodities. But the diesel tax reduction, the excise duty reduction is going to help all of us because that will definitely drive inflation down and also operating expenses in terms of running the paint booth where diesel is used in a big way. So in that sense, I would say that the inflationary trend has kind of stabilized, but I would put a cautionary note that it is becoming highly unpredictable.

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

Sir, again, talking about the gross margin front. So most of the auto is have reported depletion in gross margin despite the reprice hikes. So I was just wondering, is there any runoff in the raw material expenses that we should note of?

No, there is none.

So all the raw material price increases have been passed through -- have been passed on to the customers now, isn't it? Or...

No. We had roughly 6% to 8% price increase depending on what we are dealing with. So what we -- roughly, we're able to manage is passed on about roughly 4% to the consumer. 2% to 3%, we have been able to manage through better cost management.

Okay. So then given that at the quarterly end rate of volumes that you were guiding, so this should be a new normal range of EBITDA margin for us, right? So why are we really still scaling down upon the margin guidance?

There will be several operational expenses in terms of driving avenues of new growth. And that is why I'm still maintaining the margin at the guidance that I have given earlier.

The next question is from the line of Rahul Jain from Credence Wealth.

Congratulations on good set of numbers and specifically on the margins front, where you've done very well. Sir, you have been talking about FY '25 target of about INR 3,000 crores. And I think in one of the previous calls, you had mentioned that it could include about INR 1,000 crores top line from tractors and INR 1,000 crores from tillers and other products.

Yes.

So just to understand on the tractor segment first. So for last 10 years, when I see our numbers, our tractor volumes have been -- on an average, they have been in the range of around 8,000, 8,500. The highest number in last 10 years was 11,300 in FY '18. As most of the years, we have been averaging around 8,000. So going ahead, 2 parts to it. One, you have said the compact segment, which we have been there for a long time now. And secondly, you have spoken about going into the higher-HP segment. So first of all, sir, what are the steps we are taking out? What gives us the confidence that from a top line of around INR 300 crores -- INR 250 crores to INR 300 crores range of CapEx, we can go up to INR 1,000 crores in the next 3 years? How do you actually -- what is the kind of road map to achieve this? So considering in the higher HP, I do understand that the market size is much, much more larger. But in...

I think you're giving the answer [indiscernible]

But at the same time, sir, the competition is also quite intensive over there.

Yes. Yes, you're right. So let us understand what do I need to do to get to INR 1,000 crores. There lies the answer. I don't have to become the market leader or I don't even have to sell 50,000 tractors to get to INR 1,000 crores. You get my point, right? A single unit of tractor goes at about INR 6 lakhs to INR 7 lakhs in the higher HP space.

Okay. Sure.

So if you sell close to about 8,000 to 9,000 tractors, you are talking about adding revenue roughly of about INR 500 crores to INR 600 crores.

Okay?

And we already do a revenue of close to INR 400 crores in our compact tractor business. So this is a rough -- I mean I'm giving you rough picture of what we intend to do. Of course, we have to say -- I mean, as you rightly said, the competition is very intense. Getting to 8,000, 10,000 numbers is not that easy, and nobody is going to give us space to kind of occupy that. But what gives me the confidence we see today, I'm operating with about 320 dealers. Any higher-HP player in our country has dealership network of about 800 to 900. Now V.S.T. has never been able to enter into the northern market because we didn't have products that the northern market needed, which is the higher-horsepower segment. Now with products being there and the initial experience of ours in markets like UP and Rajasthan, where our products have started selling and people are coming forward to take our dealership. We are pretty confident that we will be able to build our network to 800, 900 numbers. And this network increase and coverage increase is what will drive the numbers that I spoke about, enabling us to get to INR 1,000 crores.

So do I understand that the change which is now happening in last 12 to 15 months is basically the product which you have developed and also the distribution networks which you have developed and are further developing? These 2 things will help you to get to [indiscernible] ?

Absolutely. And product -- just not these 2 products that we are launching. We are going to launch a slew of products in the higher-horsepower space. That is why we started with V.S.T. Zetor. So you will see the first variance of those products in the higher-HP segment coming from V.S.T. Zetor stable in the next financial year. And you will continue to see launches happening again in the next financial year itself because I can't give out the details right now, but you will see us bringing a large range of products in the higher-HP space. And Zetor is known for higher HP and higher horsepower. So we are confident that we will have products both at the premium segment level and the value-for-money level from the VSP stable. So both these put together, we are confident and the distribution network, we are confident that we will be able to achieve our objective.

Sure. Sir, if you could similarly guide us on the INR 1,000 crores which you're targeting from the tillers and other products. Because tillers today is around INR 400 crores. And for last 10 years, again, over there also, somehow the average number has been around 21 -- the average has been in the range of around 21,000 on the highest again being in FY '18. So what are we doing over there? And how do you get to that number of INR 1,000 crores in the power tiller segment from...

We are growing the power tiller industry. That is why I said last year, we grew 40%. This year, we will be growing close to 30%. And we are pretty confident about that. Why? Because we have launched new products. We are in -- again, we are increasing distribution. Today, we are at more than 500 dealers in the power tiller segment. And all these growth you are seeing in H1 at 17% growth is coming from business which is not dependent on subsidy. So this gives us confidence that we will be able to grow the business despite subsidy. And to get to INR 1,000 crores, we are looking at doing roughly about 50,000 to 60,000 tillers, which will give us a turnover about INR 550 crores to INR 600 crores. And then we are looking at building this entire power weeder, brush cutter, chainsaw range that we are working on. We have launched the entire range now. So that will also yield about INR 250 crores to INR 300 crores in the next 3 years.

Sure. That is quite helpful, sir. And on the export front, you had mentioned about reaching somewhere around 10% of sales, the targeted INR 3,000 crores sales.

Yes.

Correct me if I'm wrong, we are somewhere around INR 40 crores of export sales as for FY '21. So similarly, what are we doing over there? Again, probably Africa and some of the regions has been quite competitive. So what exactly are we doing on the export front strategically to reach that number of INR 300 crores?

Yes. So on the export front, see, first again is we are consolidating in Europe, especially in Western Europe. I'm very happy to say that in H1, we have grown more than 200% in exports. That is the largest growth we have seen. And we are also expanding in the Eastern Europe. We have entered Romania, Bulgaria, Croatia, and Slovenia. And there is still markets which we have not entered. Typically, the Scandinavian countries we have not entered. Secondly, the other Eastern European countries, including Ukraine, Serbia, all these and -- which are all [ trend 3A ] markets, which is similar to Indian emission norms. Those markets we have not entered. Turkey, we have not entered, which is the third largest tractor market in the world. So in Europe, there is still a large opportunity that we are pursuing. Second continent that we can focus is on Africa, where we have entered the western part of Africa and the southern part of Africa this financial year. And we are seeing good momentum in terms of both the tractor business as well as the power tiller business in Africa. So we -- and also Africa is a larger higher of our market. So with the launch of higher-horsepower products from our stable, we will be able to grow those markets further. We are also in talks with our partner, Zetor, to expand into other markets, especially in Latin America and the North American markets. So that is also under discussion.

Sure. And sir, one last question. With regards to the management bandwidth. So we are talking about going from about INR 750 crores to INR 3,000 crores in a span of 3, 4 years. So what kind of management bandwidth do we have today? And what kind of other additions do you need to do to get to this number?

Yes. We need leadership bandwidth. So in our -- if you have gone through our annual report and our mission statement, we are talking about 5X leadership. Now this 5X leadership has been thought out that we need at least 5x the leadership that is in the company today. So we are working on that. And in the last 2 years, we have recruited people from tractor industry itself and the automobile industry in general for various functions from -- for HR or finance and the leadership in the power tiller segment and in the other areas of tractor business as well. So yes, we are -- it is ongoing work for us. I mean there is still a long way to go because considering our growth plans, we need more leadership, and we are working on that.

The next question is from the line of Prolin Nandu from Goldfish Capital.

A few questions from my side. One is that -- I joined the call a bit late. Have you mentioned how many power tillers do we sell on a [ cat ] basis? [indiscernible] that number, the percentage?

That [ number ] percentage is very low now. It could be about -- I mean it's a rough number, gets -- I mean, kind of -- I'm telling you, it's about, let's say, 15%.

Sure. So that's -- I mean I just wanted to ask that for the past few quarters, we have mentioned the change in trend among newcomers. They no longer wait for subsidy, right? It might come after in purchase. Has that trend now it's a very firm trend now and you think that eventually the 15% number will become 0 in few years' time and things that we will not have discussion around at all? Is that a fair way to look at it expecting?

I don't know about 0 because the government has to stop [indiscernible] it, but I don't think they will stop. But the trend -- yes, but the trend is like this. I can tell you this. This trend is very much here to stay. The only reason I am saying is the customer is getting direct benefit transferred today. He is getting the money into this account. So that is the biggest difference that has happened and which is helping the industry. Because earlier, what used to happen is that the customer was dependent on the dealer to get his subsidy money. Today, he is not. So if subsidy comes, we know that he is going to his bank account. So he's not worried.

Sure. But that BD also, you were saying that, that is a 15% across...

Why I said 15% is because the government has to do subsidy allocation only then subsidy comes, right? So this year, our equation has hardly happened. So that is why the entire industry is working practically without subsidy now. So -- but that doesn't mean that these customers won't apply for subsidy.

Yes. I understand. I understand that. I understand. They are no longer waiting because it's coming in your account. I get your point.

Exactly.

I think -- but the larger question to that was that we were right to see whether we can get some sort of a financing deal with some of the banks as well, right, for power tillers. And one of the challenges was there is no chassis number, so to say, for a tiller, right, in sometimes? And we have -- I think, if I'm not wrong, in the past conference call, you had mentioned that we have tied a bit a small finance plan, general small finance plan, if I'm not wrong. So anything on that? I mean -- so my point is, in other segments, what we are saying is that as soon as financing becomes available, the size of the opportunity or the size of the market is new, right, in terms and it just expands a lot. And in a market like India, where the agriculture is dominated by small and marginal farmers, the size of tiller industry is estimately small, right, in some sense. So do you think that this financing can help solve this problem? And are we being the leader, what are we doing to ensure that such kind of [ projects ] happen?

Yes, we have done already tie-up with [ Dena ] small finance bank and community. So it [indiscernible] . So we have tied up with a few of them, and more work is happening on this front to increase finance. Today, the issue is the coverage of the bank across the country, especially rural parts, is not significant compared to the nationalized banks like SBI or the bigger bank. So that is a constraint today. But I think we are making good progress on this front. And you are right that we will be one of the major drivers of growth for the power tiller segment.

Sure. Sure. But right now, what percentage of our tiller sales happen on finance?

5%.

Okay. And is there any challenge why we are not able to tie up with somebody who has a national spread or it would be banked to the India [indiscernible] ?

See, the problem that we are facing is one you yourself said. One is the registration of the [Audio Gap] India, one. Number two is the effort of the field officer for doing INR 1.5 lakh finance sales a tractor, which is a INR 5 lakh finance is the same. So as the ground for the branch manager to meet his target, he is focused on a larger ticket rather than focusing on a smaller item.

Right. Right, right. So have we tried, I mean, talking to some of these MFI small finance banks where ticket size is much more similar in terms...

That is precisely what we are doing. That is why I said a small. So you will hear a lot more about it. Earlier this finance used to be at 2%. Now it has moved to 5%. Our target is to take it to at least 25% by next year.

That would be great. That would be great. Okay. So looking forward to see more such tie-ups, sir. And also, again, now the question on tractors and our ambition of reaching INR 1,000 crores there. And I completely understand INR 1,000 crores in overall scheme of things is very, very, small, and we don't have to achieve great market share there. But what we have realized is that the brand loyalty right in tractors is extremely strong, and it's very, very region-specific, right? District right next to each other will have 2 different brands which are extremely strong there, right? So apart from the features and value-for-money offering, what are the other sort of -- I mean, what are of the other things that you are working on, which will make the farmers lower tractors versus a brand which is already established there?

Yes. So like what I said is the brand is having acceptance of roughly about 10% share in markets like Maharashtra, Gujarat, southern markets, in the compact tractors. So there is a certain equity. Now definitely, we will take advantage of the equity and drive sales in these markets for our higher horsepower as well. Now -- but having said that, the larger ton of the high-horsepower market is the northern market, where we don't have brand equity. So what we are focusing on in these markets is how to build our brand, how to build brand we have seen in these northern markets. So a couple of things what we are doing is we are rolling out advertising. We are rolling out a lot of digital campaigns in these segments and these markets. And that is one definite thing that we are doing. And as I said, you don't have to even take 10% share to get to INR 1,000 crores.

I get that point, yes.

Yes.

Sorry, you were saying something, sir?

No. No. What I was saying is, so the focus is on the northern market, how to build the equity and how to build the V.S.T. brand presence in these markets. And that definitely is happening because we see the dealerships are getting appointed even though the brand was not present in this market earlier. One of the key differentiators, which I kept on emphasizing in earlier calls also is the fact that we are not pushing inventory.

Okay. Sure. Sure, right. And are we -- I mean if, let's say, for example, a farmer wants to get V.S.T. tractors in high horsepower financed in another market, will he get at the same rate versus a leader in that particular market?

In the northern markets, we are not getting the same, I would say, quantum of loan, okay? The rate is the same. Interest rate is the same. Suppose a market leader gets 90% financing, a new brand in that market gets only 70% financing. So that difficulty we are facing, but we are working with the banks to overcome that by working other promotional schemes with the bank.

Sure. And because we don't have a track record, and hence, we don't have the -- a [ vintage ] record as well, right, or resale value, so to say, right, is that also a challenge which we need to overcome through branding and other -- such other things?

It is very specific to market. We don't face that problem. See, we are getting 90% finance in markets like Maharashtra, Gujarat and even in the other market. We are facing this problem only in the northern market, where we were totally absent. So that is where we have given confidence to the same bankers. And it's BSU financials is Maharashtra at 90%; YTD refuses 90% in UC, for example. So that is working. And -- because, see, it has to happen at the field officer level, at the brand manager level.

Right. right. Okay. Understood. Right, right. Okay. And just anything on the Zetor tie-up? I mean there were some visits which were pending from there and to take this MOU further now that traveling has started, I mean, can we see some progress on that front?

Definitely, you will hear a lot from us in the coming quarters.

Sure. Sure. And last question is on the land that we own in Bangalore. Why is in the past, we have said that we have no immediate plans. But anything has changed on that because that's a very prime land and I'm sure that you also must be tracking the real estate cycle in Bangalore? Any plans on that? Anything that I changed from the point of view of force on that particular asset?

No, not at the moment.

Okay. But any thought process that we have as to how do we intend to monetize that?

Definitely, we will do it. Like I said before, we will have to monetize it at an opportune time. And that will happen, but not -- we have not decided anything at this point in time.

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

Sir, [indiscernible] . I have one clarification. I mean you have indicated that dealer purchase are happening despite the subsidy being released so that the farmers are buying come. And later, they're applying for the subsidy. That's what the trend going on for the last 1 year or so, if I'm not -- if I'm right. So my question here is like considering that from the last 1 year, we are seeing lots of purchases like this and part there is a lot of partners waiting for the subsidy to be released. I know they have made the purchase. So we are not waiting for anything. But the partners are waiting for the subsidy getting released. So I mean, as we go on and considering the states are also taking challenging on the fiscal policy. So if this trend goes on like there are a number of farmers sitting for another 1 or 2 years more, do you see this farmer purchasing may come down? I mean, do you see this going to impact our volumes not in the...

Purchase -- no, purchase happened because of the need, right? Nobody will purchase anything because subsidies are available. The purchase is happening because the farmer wants to use the machine in his farm. Now the whole concept of subsidies, it kind of eases his purchase decision, right? Because he doesn't have to accrue that much capital because a share of the capital is coming from the government. So what is the purchase decision or lease burden, I would say, financial burden. But that doesn't mean he is buying the power tiller because subsidy is available. He is buying power tiller because he needs it in farming, and that has become predominantly high because labor is scarce or labor has become costly. So because of this reason, people are buying and people are using it in the farm, number one. Number two, once he uses it in the farm and there is a large segment of power tiller users who [ rents out ] power tiller. And typically, what we have understood is 2 to 3 seasons, he recovers the cost of the power tiller, wherever renting is prevalent. So once the earning potential is realized and once he realizes that he has to pay much, much lesser interest costs compared to a tractor, which otherwise becomes a huge financial burden for him in terms of interest that has to be paid, now the power tiller is increasing. And with 16 HP where the farmer can sit and drive and use power tiller like a tractor, where the fatigue is not there for farmer to use and he's walking behind. We see the sales increasing. So I mean to kind of answer, you see, people are not buying because of subsidy. People are buying because of needs. And if you can reduce fatigue, if you can reduce the burden, it becomes a catalyst for more purchases. That is what I'm trying to tell you.

Okay. Sir, my question is basically -- not -- what I was trying to find is that considering that there is a lot of partner spending, so -- and [indiscernible] may not cater to everyone. So I'm trying to find because in one point there might be stage where the government may not be able to cater for everyone because of the order pack spending order of higher number. So is there a purchase being changed from farmer? Do you think that may happen?

I don't think so. Maybe one more question.

We'll be taking one last question. That is from the line of Saket Kapoor from Kapoor & Company.

Sir, firstly, on the capital work in progress part, the figure of INR 30.47 crores, what is it attributable to, sir? And when is this going to get capitalized?

Yes. So we have some product development that is under progress, which will be capitalized as soon as it is done.

And the benefits of the same will accrue going forward in the coming years?

Absolutely. Absolutely.

Okay. Can you give some more color on a -- what will it lead to more products -- new that is where...

We see -- for example, we have a certain range of engines that we are sourcing from outside. So that sourcing will stop. Those kinds of things will happen, which will help the company financially.

So you mentioned that H2 last year was lower in terms of business and profitability. So this -- the comparative number for this year H2 is likely to be better. So this understanding of mine is correct you answered to an earlier question?

Yes. Yes.

Sir, last year also, we had the employee benefit expenses of INR 82 crores that I think we included some VRS part of this. This will not be here for this year. So that will be an addition to what you were saying because that would be the one of the reasons?

That was a onetime expense, you're right.

That will not be here, so that will be a contributing point for this H2 in terms of that?

I didn't talk from that angle. I'm talking from the top line angle.

From the top line angle. Sir, when we look at this other income component also, sir, we are into this manufacturing business part, but still said 1/3 of our income is coming from our investment-related activities. So looking at this top line figure of INR 3,000 in year '25, how will our investment profile likely to look, sir, when we look at the returns, looking at what the incomes are today? What should we look in terms of the other income components going forward also? And sir, lastly on the component business part also, sir, I think you at my [indiscernible] we were developing some new products to into our bouquet of components. So where are we in terms of that?

Yes. So to answer the first question, the capital investment is the -- it all depends on how much capital we are carrying at that point in time. And I'm sure the company will take the decision to maximize returns on the capital at that point in time. I can't comment. I mean we don't have a business plan on capital return 5 years from now. That's we don't have. Because you very well know, you rightly pointed out, we are a manufacturing company, right? So we have not planned for that. But we -- at that point in time, the capital that we have will be utilized appropriately to maximize returns, number one. So I think that answers question number one. And for question number two, which is Mysore, yes, I had mentioned to you, we have converted that into appreciation implement division, where we have started manufacturing automators. And these are initial days for it, but it is profitable and doing well. And we will be able to talk more about it in the coming quarters.

Okay. And last bit of [indiscernible] . The volume discussion that usually happens during the call because to our [indiscernible] if that number can be well implicated in our press release that would -- that would get sorted out before the call comment. The volume numbers for the quarter, a competitive number as the general questions from us, if that could also be put forward to us in the press release component. I think...

Got that because we only announced the financial. This time, we will do the numbers, yes. Okay.

Even the horsepower extra part of the study also, which many of us are asking if those numbers, the details are mentioned, that will suffice us also at.

Okay. Thank you. Thank you, everyone, and thank you for your time.

Mr. Annamalai Jayaraj, would you like to add any closing remark?

Nothing. Sir, we thank V.S.T. management for taking time [indiscernible] . We thank all the participants. Have a good day.

Thank you very much. Ladies and gentlemen, on behalf of Batlivala & Karani Securities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.