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

Ladies and gentlemen, good day, and welcome to V.S.T. Tillers Tractors Limited 2Q FY '25-'26 Post Results Conference Call hosted by B&K Securities. 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. Nitin Agrawal, Chief Financial Officer. [Operator Instructions] Over to you, sir.

Good evening, everyone, and welcome to the Q2 conference call. This is Antony Cherukara, Chief Executive Officer of the company. We start with the presentation, safe harbor and key highlights, sales volume, financial performance and certain awards and recognitions we have earned through this quarter will be shared with you. Some of the key highlights of Q2 and H1. We had the highest turnover of any Q2 so far, achieved INR 315 crores of revenue vis-a-vis last year of INR 283 crores. The H1 turnover also was the highest ever at INR 598 crores vis-a-vis INR 474 crores last year in the same period. The total revenue generation growth has been 26% in H1. The cash generation has improved from operations. While we deployed INR 52.1 crores cash last year, this year, we were able to generate INR 62.5 crores of cash in the first half of this year. We had the highest sales of power tillers in H1 with 43% growth. We also started reversing the cycle on tractors with a 10% growth on the domestic tractor business, almost in line with the industry growth. And the power weeder sales continued to grow rapidly. It has grown 42% in the first half of this financial year. We expect that to continue. Moving on, getting into the details of the numbers in Q2. Power tiller, we have grown by 16.8% vis-a-vis last year Q2, which is at 13,128 tillers versus last year of 11,236 tillers. Tractors domestic in Q2, we have grown almost 16% in line with industry, from last year of 924 tractors, we have grown to 1,068 tractors. Exports, however, we are down by about 33% at 254 vis-a-vis last year of 382. Power weeder has grown in Q2 to 2,621 against last year of 1,779, which is a 47% growth. Power reaper, which is a seasonal product, which comes in Q2 and something comes in Q3 as well. In Q2, we have registered 140% growth from 598 to 1,432. If you look at sales volume in H1, power tiller has registered a growth of 43.3% with 24,829 tillers getting sold in first half vis-a-vis last year 17,325. Tractor domestic has shown growth this year at 2011. So we are reversing the downward cycle on tractors in the domestic market. In exports, we are at 566 vis-a-vis last year of 776. Power weeders at 4,970 vis-a-vis last year of 3,490, has shown a growth of 42.4%. Power reapers, again, 1,512 vis-a-vis last year of 632, a 139% growth. Coming to the financial performance of Q2. Revenues have grown by 11% at INR 315 crores vis-a-vis last year of INR 283 crores. The operational EBITDA is at 13.1% vis-a-vis last year of 13.3%, almost remaining flat at 13-odd percent. PAT is at INR 25.4 crores vis-a-vis last year of INR 44.9 crores. And if you exclude the MTM gain or loss, the PAT is at INR 27.7 crores vis-a-vis last year of INR 24.35 crores. So the decrease you see in PAT with MTM, it is because of the MTM loss in this current quarter compared to last year. Coming to financial performance for H1. The revenue has grown by 26% at almost INR 600 crores vis-a-vis last year of INR 474 crores. Operational EBITDA is at 13.2% vis-à-vis last year of 10.8%. Operational EBITDA at INR 78.7 crores vis-a-vis last year of INR 51.2 crores. PAT at INR 70 crores H1 compared to previous year, INR 67.8 crores despite the reduction in MTM gain and slight loss in Q2 that I shared in the previous slide. PAT excluding fair value gain or loss is at INR 48.5 crores vis-a-vis last year of INR 28.2 crores. So the profitability is showing good signs of increase. Some of the awards we won in this recent period. We have won the Machinist Super Shopfloor Award, which is for our Mysore plant, wherein we have started external business. This augurs well when we look at the opportunity outside of VST in terms of supplying components, especially to the metro rail and the other sectors like aerospace. We have also won awards in Kaizen Competition, Gold Award in Kaizen Competition. Also, we have signed an MOU with Tamil Nadu Agriculture University to promote small farm mechanization, where along with the universities, Krishi Vigyan Kendras, we will be going village by village and demonstrating the small farm machines, including tillers, reapers, weeders and also displaying these machines at the Krishi Vigyan Kendras in various districts of Tamil Nadu. This is the beginning that we have done with Tamil Nadu. We intend to do this with almost all the major agriculture universities so that we can penetrate more into the small and marginal farmer segment. With this, thank you, and we are ready to take any queries that -- from your end. Thank you.

[Operator Instructions] Yes. First question is from [ Mr. Pankaj Kejriwal ]. You can unmute and ask your question, sir.

Yes. Yes. On the tractor side, though you have come back on growth path, can you just help us understand the medium-term outlook on tractors? We believe that on the engine side, you guys are working a lot. So when is the new product launch, how big this tractor division can become for us as you move ahead into the next couple of years? A larger outlook on tractors and how we gain market share, now we will have from 30 to 50 horsepower. Can you give us some clarity on that part? That will be helpful. And the second part is on the tiller side, how is the growth looking like now at the ground level? I know there were some challenges last year because of the SPARSH scheme, how is it looking like and the financing from the banks looking like? These are the 2, 3 questions, if you can help us on the outlook side.

Sure. Thank you, Pankaj ji. And I start with the tractor business. Earlier, we were predominantly only in the compact tractor space. So now with the Zetor JV, which we started last year, we are also in the higher horsepower space. In the higher horsepower space, so I'll cover the higher horsepower space first. In the higher HP space, we are -- we have redefined the products. We launched with a 2.9-liter engine. Now we are going ahead with a 3.22-liter engine and a 16 plus 4 transmission, which was an 8 plus 2 transmission to begin with. So we are launching a completely new tech platform on -- from the VZ stable. And the 3.22-liter has already been in production for the last 1 month. We have seeded the product in the market, and we have tremendous response from the market in terms of performance of these machines. The torque generated in comparisons with the competition tractors is superior, and we are able to get good output at the farms or the agriculture or commercial usage, the farmer puts the higher horsepower, too. So that is in the higher horsepower space, which again, we will be following up with a combination of 3.22-liter engine with 16 plus 4 transmission in the Q3 end or Q4 beginning. In the compact tractor space or below 30 horsepower, we have multiple platforms that we are launching. In the 18 HP, 22 HP, 27 HP as well space, we used to have a 0.9-liter engine, which now we are replacing with a 1.2-liter engine with maximum torque, we call it Torque Max, which has got the best features of torque and fuel efficiency in the industry, with a new look of Phantom, Phantom new look, Fuel-Efficient and Torque Max, that is the full form of Phantom, FENTM, Fuel-Efficiency and Torque Max. So these products will be coming into the market in larger volume in the end of Q3 and Q4. With this, we will be able to further build on the gain we are already getting in the marketplace. So the 10% growth that we are seeing, we expect the growth to accelerate. On the 29 HP segment and up to 30 HP, we are launching a 1.6-liter engine. This again comes with the Fuel-Efficient Torque Max technology, which again will be launched in the same period. And we believe that it will give best-in-class performance among all the engines that are in this segment in the industry. So this is -- so this augurs well for the domestic market. Now the good thing is both the 1.2-liter and the 1.6-liter engine also is Stage 5, which means these engines we will be using in the European market as well. So the Phantom series becomes kind of a global platform, not only in India, but in Europe. And eventually, when the tariffs open up, these same platforms can be used in U.S. as well, which also will give us economies of scale. So this is how we have planned the strategy for the tractors business going forward in the medium term. In the long term, we have other plans. I think we will get on to those details in the further future calls. Coming to the tiller side, last year, Q3, if you remember, Pankaj ji, last year, H1 was good. But Q3, Q4, the government decided to change the system of subsidy payment. It was called the SPARSH project, Project SPARSH by the Government of India, which affected complete cash flow into the farmers' hand. Subsidies got delayed. And hence, there was an effect on the industry. That towards the end of last year, Q4 or beginning of Q1 of this year, that entire project has been implemented and that positive effect is seen in the Q1 and Q2 of this year where the subsidy flows has been timely to the farmers. Why I'm using the word timely? It is because the quantity necessarily need not go up, but the timely release is causing the quantum jump in demand in the marketplace because when the farmer needs it, if the subsidy is available, he's more infused to buy or he is more infused to avail the facility that is given by the government. So that is driving a lot of demand. Inquiries are very high. You can see from the numbers in October that continual demand is continuing both in the tiller or the power weeder or even the reaper space. But however, the reaper is a seasonal product. Reaper is used in harvesting. So that -- typically, the period is for 3 to 4 months. So by the end of November, that season subsides. But we believe that in the reaper space also, there is good growth that is happening. We should be able to double the volume of reaper business that we did from last year. So overall demand in the small farm machine space, overall inquiry generation in the small farm machinery space is continuing, and we believe that it will continue to be there with the scheme or with the project that is implemented, the system of payment, which has become kind of permanent, I don't think the efficiency will reduce. So we expect that the flow will continue. Second aspect is the retail finance that we were working on in the small farm machinery space has now in the focus states, focus 5 states that we took for retail finance has gone to 12% plus, which used to be 1.5, 2 years back, which used to be almost negligible. And last year, it was at about 6% -- 6% to 7%. And today, we are at 12% to 13%. So that also augurs well for the growth of this segment. And we believe that retail finance also will continue to grow because players like Bajaj Finance has now come into small farm machinery financing. Thank you.

One follow-up. On the tractor side, Antony, how big the volumes could be over the next couple of years? Can we move to 10,000, 15,000 million unit market because now we are on the highest horsepower also and with the new engines coming in from our side? Is that a fair assumption to make that the tractor volumes over a couple of years can double from where we are if we execute well?

Yes. Today, the turnaround has happened. We expect growth this year. And from this year's growth, getting to [ 10% ] in the near term should be very much possible with the execution ability, the competency of R&D that has improved and our ability to launch multiple products at the same time, that also has gone up. These are absolutely new things that VST has gained in the last few years. And definitely, I think the numbers that you said in terms of 10,000 to 12,000 tractors in the next 2 years is definitely possible.

[Operator Instructions] In the meantime, [ Mr. Shreyans ], you can unmute and ask your question.

So I had a couple of questions. So on the GST cuts, so we are now from 12% to 5%. So how do we see demand going up, given like in the tractor space specifically? Because one of -- like Escorts in their call, they see that demand is going towards higher horsepower because they say that it's multi-utility tractor, the 40 to 50 horsepower that gives them. So they are getting it at the same price at the lower horsepower. So how do you see the market shaping up with the GST cuts?

According to me, GST cut definitely helps the smaller farmer compared to the larger farmer. So if you see the affordability factor, let us say, a difference of INR 10,000 to INR 20,000 plays much significantly higher in terms of decision-making when the capital is limited compared to where capital is available or retail finance is easily available. So I would say the demand that I'm seeing in small machines like power weeders, power reapers, tillers, all this is being influenced by ability to buy and limited access to capital. So the lesser it gets, the better for them. So the impact is more in the smaller farm segment. But having said that, there could be early purchase or purchase decisions which are being preponed because somebody is getting an immediate GST benefit, as you can see in higher horsepower tractors or even in luxury cars. But I don't see that playing out in terms of expanding the industry in the higher horsepower segment because affordability really doesn't matter for that segment. What really matters is access to capital, which is also easily available to them. So I don't think -- but if you look at expansion of industry, if you give a benefit of [ INR 10,000 to INR 20,000 ], that happens more in the bottom of pyramid.

Okay. Okay. Understood. My second question was on the realizations for this quarter. What kind of price cuts have we taken? Because based on the volumes and the revenue growth, they're not aligned. So if you could help us with some -- give some color on that.

No, the price cut is only with respect to the 5% reduction, that is -- sorry, 7% reduction, 12% to 5% GST that has changed. Other than that, there is no price cut reduction. And I particularly didn't understand your question in terms of why is it not aligned to volumes, right?

No. What I mean to say our volume growth from September quarter to last September quarter for tillers is 17%, tractors is, I think, flat, but then weeders, reapers is higher. So...

I can give you the unit prices typically of a reaper, which is about INR 1 lakh. For a weeder, it is typically about INR 45,000 to INR 50,000. So this could probably calculate the exact kind of estimation that you have done.

Okay. Okay. And tiller would be around INR 1.5 lakh and tractor like around INR 5 lakh? Is…

Correct. Tractor would be -- because predominantly, we are currently in compact, it will be about INR 4.5 lakh.

Okay. And one more question I had was on the new product launch that you said that you are looking to launch something between the tiller and tractor space. So where are we on that? And if you could give some idea on like what is the advantage that a farmer would have and what kind of people would buy such a product?

Yes. The product -- project is continuing and a lot of trials are happening currently in various parts of the country, customer workshops are being done and trials are being done. The biggest advantage for a farmer is the comfort of a tractor, which is you can sit on a tractor just like on a tractor and operate and the affordability of a tiller.

So in terms of functions, it's going to function like it's going to have like a larger engine or...

Not necessarily a larger engine, but it will be like sitting on a tractor and operating. We will have various options of engine. In fact, we will have -- like I have announced earlier, we will have an electric platform also on that.

Okay. Okay. And my last question is, what would be the life of a tiller typically, like just trying to get some idea on the replacement demand as such.

See, life of a tiller is anywhere between 10 to 12, 15 years.

Okay.

[Operator Instructions] In the meantime, I have only one question, sir. See, you talked about exports volume being down. Other than that, we are looking for some component level exports also. Obviously, it was very small, but we are expecting it to ramp up. Now with the current change in environment, what is the outlook, sir?

Yes. So our component exports mainly has been to Europe, especially in the railway segment. So it has grown from where it was a couple of years back. But I think there is more room in that area to grow, and we are working on it.

But we were trying to do some component exports for the electric tractors in U.S. also know, sir.

Yes. With the Trump tariff happening, that has come to a standstill.

Okay. Okay. No problem. So next in the queue is Mr. Ashish. You can unmute and ask your question.

Yes. Sir, I just wanted a clarification on the tractor possible potential that you said, I think 10,000, 12,000 numbers, that was annual numbers you would say one would achieve? Or was it a [indiscernible] for the next 2 years?

Annual.

So you think we are set for 10,000-plus numbers, is it? I mean...

See, last year, we did close to 6,000 numbers. This year, we will definitely -- we are growing at this rate, we should be upwards of 7,000 cumulatively. And next year, I think we should be able to cross that number of 10,000 definitely.

So this is total, including the low and high horsepower both or more than 50 plus?

Correct. So we will have growth both in the 40 to 50 HP space, also in the sub-30 space.

And what would be the mix if you could elaborate on the new portfolio of higher horsepower, any indications on that?

See, the -- eventually, the larger growth will happen in the higher horsepower space as the industry itself is much larger. The combat space is just about 80,000 to 90,000 tractors. This year, it might cross just about 1 lakh plus. But the larger horsepower upwards of 40 is over 8 lakhs to 9 lakhs -- upwards of 30, sorry. 30 to 40 is 4 lakhs plus and 40 to 50 is 4 lakhs, 5 lakhs.

Okay. So out of this 10,000, you are saying reasonably big contribution from the higher horsepower. Is that...

Yes. In the next -- in the medium term, it could be lower, but eventually, it will be larger.

Okay. Maybe eventually would mean maybe in a couple of years, right, '28 sort of...

See, I have said for 2 years, 1 or 2 years, third, fourth year, you will see those ratios climbing as a total ratio.

But sir, what are the challenges on the ground? Because as you said, the market on the higher horsepower is 90% -- 80%, 90% of the overall market. And just trying to understand because we had put a lot of effort on the -- on getting this platform established in terms of distribution, in terms of product, in terms of people. And still these numbers will be pretty small in overall context. So just trying to understand how things are shaping on the ground? What are your distributors saying, what are the difficulties, et cetera, et cetera, for the customer sake?

See, first thing is as we are entering a new segment, it is to get the product absolutely right. So the first 2 years, we have been very careful in terms of seeding large numbers, large in the sense, 300, 400 numbers, 500 numbers in the market and creating feedback and creating great experiences for those farmers. So that we have -- having done that, now we know exactly how to scale it up. And we believe that in the next 2 years, we will be able to scale it up. So it is a gradual process, and there are about 17, 18 brands playing in this place -- in this space. And we are unfortunately the 17th or 18th brand entering this space. So you have to create a differentiation. You will have to create a differentiated experience. We believe that we can do now with the explanation that I gave on the transmission, the engine and the superiority of what we are going to give in the market.

[ Mr. Umesh ], you can unmute your line and ask question. Mr. Umesh?

Given the strong performance that we had in H1, can we expect a similar or a much better H2 performance as well?

October has been good. November also seems to be good. So Q3, it looks like a positive outlook. Q4, if things remain normal, I think H2 as a whole will be good.

No, sir, we have been growing pretty much at a faster clip on weeder side. Is there any [Technical Difficulty] that might affect us going forward in this segment?

It is already a very -- in fact, it's quite a highly competitive space. It's a very fragmented industry with over 2 lakh, 2.5 lakh weeders selling all across the country. The organized play is limited. I would suggest that or the assumption is there is a consolidation which is due that will happen with better products being given to the market, warranty offerings, service offerings being given to the market, customer expectation and sense, fragmentation of the industry is likely to reduce in the medium term. And in the long term, definitely, it will happen. And that benefit of consolidation is something that we expect to gain over the next 5 to 7 years. So a lot of small farm machines, especially attachments on the small farm machines also will have to be given so that the versatility of these machines increase. It's the fragmented players or the unorganized players will not be able to match. And that creation of value is that will drive growth, and that is what is driving growth for us. So to begin with, we have started manufacturing in India. That is again a plus wherein we can service the farmer, modify the product as required by the farmer in various regions, give various attachments the farmer needs. So these are the steps we will take as we move forward. And that will definitely cause a consolidation. And I believe like -- and the potential is very large. The bottom of pyramid is huge. 80% of farmers are small and marginal, which I've been consistently saying, and that is why we are getting that growth.

Sir, given the positive developments which have been happening in the sector and also the new launches that you would be doing , so can we expect the guidance that you have given of around INR 2,000 crores to be achieved at a much faster clip than earlier?

See, I have in the last few quarters, tried not to give a revenue projection because in the previous experience 1 year back or 2 years back, new surprises have come. However, having said that, our ability to execute has gone up. So if things remain normal, the answer is affirmative to your question, that is we'll continue to grow fast.

Mr. Pankaj Kejriwal, you can unmute and ask your question.

If I heard you right, you said 7,000 plus this year. And just to put numbers in perspective, in the first half, we have done 2,576 tractors. So the asking run rate is about 4,500 approximately, which means about 750 tractors. This is the number we have seen last in March '24 and 800 tractors in March '23. Do you think this kind of a run rate and the new launches is giving you that confidence that this run rate we can come back and then later 2,000 tractors a month? Just wanted to get your sense.

Yes. Yes. So what I said was we will be close to 7,000. I think 2 reasons for that. One is the launches and -- which will happen in H2. So we should be very close to, let us say, 5,000 in the domestic market. And if we remain flattish in the export market, even if we don't get a growth this year, we should be almost 6,400 numbers roughly. So this is where we are. So we are looking at a range of anywhere between, let us say, 6,400 to 7,000. That is where we should end up. And probably if everything goes well and if there is a positive -- because exports, I believe the second half will be better than the first half. So if things turn out to be better, we should be able to do a plus 1 there.