VST Tillers and Tractors - Rs.100.00

Established in 1965, VST Tillers and Tractors Ltd (VST) was promoted as a joint venture by VT Velu and VT Krishnamoorthy in technical collaboration with the Mitsubishi group of Japan, which currently holds more than 4% stake in the company. VST manufactures power tillers (10-15BHP), tractors (18.5 BHP), diesel engines & precision components like crankshafts & connecting rods. Its products are sold under the brand name - VST Shakti, Mitsubishi-Shakti and Euro Trac. The company is the undisputed market leader in the Indian tiller market enjoying more than 50% market share. It also exports its products to countries in South & East Asia, Middle East, Africa, Eurpose, USA etc. It is also into trading supplying imported machinery from other countries such as rice transplanters, combine harvesters, garden tillers, reapers, hedge trimmers, bush cutters, hole diggers etc

VST has three manufacturing facilities spread across Bangalore, Mysore and Hosur. The total installed capacity is around 13,000 units of tillers and tractors combined. Currently, it is working only at 70% capacity leaving ample scope for further growth with no capex requirement in the short term. Its power tillers already have a strong presence in Karnataka, Tamil Nadu, Maharashtra, Orissa, Gujarat and is gaining market share in West Bengal and Andhra Pradesh. Its tractors division is growing at an enormous pace with strong demand coming in especially from Maharashtra and Gujarat. Its precision components division besides contributing to revenue continues to supply critical engine components for captive consumption. Last year, this division won TS16949 certification, which will help in further developing the overseas market for its engine component business. In order to beat the competition and increase its market share in the lower end tillers market, VST has decided to import Chinese tillers in the CKD form, assemble them at its Hosur facility and market them under a new brand Dragon Power Tiller (14 HP horizontal four stroke single cylinder) through its marketing and distribution network. The company is also in negotiation with its technical partner, Mitsubishi, for setting up a 50:50 joint venture to manufacture diesel engines for power generators and tractors.

To maintain the GDP growth rate, both the Central and State Governments have accorded priority to agriculture and rural development by providing subsidies to small and marginal farmers. This augurs well for the company as its business model is very much dependent on such Govt. schemes. Considering all the factors, the company is expected to clock a turnover of Rs.150 cr. and NP of Rs.7.50 ~ 8 cr. for FY07. This means an EPS of Rs.14 on its equity of Rs.5.80 cr. With a market cap of only Rs.58 cr. and book value of nearly Rs.80, dividend yield of 3% and 52W H/L of Rs.161/68, this scrip is a value buy and has the potential to give 50% return in 12~15 months.