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

Ladies and gentlemen, good day, and welcome to V.S.T. Tillers Tractors Limited 1Q FY '26-'27 Post Results Conference Call hosted by 360 One Capital Market Research. 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.

Yes. Good afternoon, everyone. I welcome you to the Q1 analyst call. This is the agenda item which we'll discuss today. I'll give you a brief overview of the macroeconomic situation, our sales volume for the quarter and then briefly I'll touch upon the financial performance. After this, we will open up for the question and answers. So on a macroeconomic situation, as you all know, there's an uneven monsoon. The outlook has been below normal monsoon by the IMD and also the rainfall distribution continues to be uneven. We also have commodity cost inflation-related trends for all steel, forging, casting, aluminum, copper. Natural rubber also -- prices of natural rubber also remain elevated and volatile. Due to the geopolitical and supply chain-related disruption, crude and freight costs remain high. So on this backdrop, I will first touch upon the volumes for the key products. So I'm happy to mention that during the quarter, the power tiller business has grown to roughly 18% of growth in terms of volume. Also, our domestic tractor business has grown by 4.5%. However, in case of tractor, in the current quarter, we have sold 275 tractors. Power weeder has recorded an impressive growth of 56%. Reaper is a seasonal product, and in the coming Q2, the volumes will pick up for the -- when the harvesting season comes. Now I go to the overview of the financial performance. So the revenue for the current quarter is INR 313.4 crores over INR 282.4 crores for the same quarter last year, which is 11% growth. Operational EBITDA where we exclude the other income and fair value gain from the EBITDA is standing at 12.85%. In terms of rupees crores, it is INR 40.3 crores. Last year same period, it was 13.3%. So there is a drop of around 45 basis points. This is largely due to the raw material cost due to the inflationary trend that has been largely the reason for impact. Our PAT for the quarter is INR 48.7 crores, which was INR 44.6 crores in the same period last year. Yes. So with this remark, I open the floor for question and answers.

[Operator Instructions] A question to assemble, sir. I will ask, what is the broad outlook as of now for FY '27, sir? How do you see that?

Yes. Good afternoon, everyone. Before I go to the broader outlook of FY '27, let me share a view on what has transpired so far and how we look at H1. The monsoon so far has been normal in the sense that the sowing is almost the same as the last year, except oil seeds and that too in some areas. So the outlook is good. But the next 15 to 20 days is going to be critical because the standing crops have to survive. And I believe that will decide the production from the kharif crop. And it will also decide the water table levels that will be required or the moisture content that will be required for the rabi crop. So next 20 days for survival of crops and balance of the monsoon for the water table for the rabi crop is going to be critical. So as of now, the outlook till September looks positive. Now an outlook for the balance H2 will be based on what I just said that the monsoon should play out the way it has done so far. So giving an FY '27 outlook, I think it's a little too early. I would say, I will be able to comment on that in another month's time. I think that will be more accurate, because right now, it will be pure speculation.

Okay, sir. But on the tractors, we have, I mean, launched the products with Zetor tie-ups, but still we are not able to see some big traction. So can you just update what is happening on the tractor sector for us, sir?

Yes. On the tractor front, we have launched the new variant. The production ramp-up is happening. And in Q1, we have not been able to fully supply to the demand that was there. So the numbers look small. So that, I would say, would have been better if the production would have been ramped up. So Q2, you will find that growing again and Q3, Q4, substantial volume increase we are expecting. However, this is a long journey and the 40 to 50 HP segment is a crowded market. It's a very competitive scenario. But we are in for the long haul. We are planning many more variants in this segment to be launched in the next 12 to 18 months. So we are very positive on growing this segment in the higher horsepower tractor space.

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

Sir, a couple of questions. So one was on the tractors. So we did -- I did notice that there's like a launch of the Phantom series also along with Zetor. So the tractor industry has been growing. Like if we see results for our competitors, they've been growing quite well, but we are not even able to keep up with the market. I understand that the growth also comes from the higher horsepower, which we're not very present in. But at this point, I would believe that we also have the numbers for July, which have also been quite flat. So just trying to get some sense on what the competition is. And even Escorts Kubota is launching a tractor in the Kubota brand now. So how do you see that shaping up? And how do you -- what's our strategy to increase our sales there?

Yes. So our strategy has been consistent in terms of increasing coverage, going to the northern markets, increasing the network there, launching of products. In the next 3 years, we are talking about launching more than 30 variants of tractors, various products that we will be launching in the next 3 years. Like I said, this is going to be a long haul. We will grow every year consistently. And I have in last call also, in the last quarter I have said upwards of 15,000 numbers we will aim to reach, close to 20,000 numbers we will aim to reach in FY '30. And I'm pretty sure that we will do that. And with all the launches, will all the product launches that we are doing now, for example, the Phantom Series, currently we launched only in 1 state which is in Gujarat last quarter. Now we are launching in Maharashtra this quarter. So we will be launching in balance rest of the states going into Q2 further. So that will give us volumes. The VZ tractors productions is getting ramped up. That will also start getting -- giving us the volumes. So we are confident on the domestic growth. We are also confident that in the international markets, things will stabilize. Today, there is uncertain scenario, which causes various issues, including logistics issues. So we have been facing in the last couple of years. This year is no different. And -- but we feel that with all the product platforms, which are going to be global platforms, we should be able to grow the international business as well. So overall, in the next 3 to 4 years, you will see us achieving the numbers that I have already in the previous calls also stated upwards of 20,000, upwards of 5,000, 6,000 in the international markets. These numbers will be achieved in the tractor business. While SFM business will continue the very strong growth that it is showing, upwards of 56% in power weeders, upwards of 17%, 18% in power tillers, that will continue. And I think both the businesses will grow in tandem, but the competitive scenarios of the tractors and the tillers are very different. Tillers is about creating a market, which we are successfully doing. In tractors, we are competing and acquiring market and acquiring market needs product portfolio. That's what we are building. And that will give us the result in the next 3 years' time.

That's very helpful, sir. Are we looking to have any launches this year in the international markets or that's going to be later?

Yes. In the international market, I mean, more than the product launch per se, what we need to solve first is the logistics problem that the distributors are facing, which I have briefed you, I think the previous call as well, to cut down the supply time to the distributors, and that's what we are working on. So the infrastructure, we wanted it to be ready this quarter, but it's getting slightly delayed. But we are towards the end of it. In Q3, it will become operational. So that should give us a big advantage, especially for the distributors so that they can protect their inventory faster. So -- and apart from that, of course, we have launched the 35 horsepower last year, Stage 5, 35 horsepower last year. We also have sent to a couple of markets the 39 horsepower in the European market. We are also getting into hydrostatic transmissions. We are seeding hydrostatic transmissions currently, which is not sold in India, but this is specifically meant for the export market. And considerable volume growth is expected from the hydrostatic transmission. And after 12 months, we also have the Platform A, Platform B, Platform C that we have already announced that we'll be launching 3 global platforms, which will be launched in the next 12 months to 36 months, 1 platform by 1 platform. So a lot of launches both internationally as well as in the domestic market.

Got it. That's very helpful. Sir, second question was on the tillers side, on the financing. So we were going to do like additional partnerships. So anything to call out? I know we had one with Bajaj Finance. So any...

Bajaj Finance, I'm very happy to say that's doing well. This year the volume has gone up in terms of retail financing. We have I think financed more than close to 1,000 tractors in Q1. I think around 960, 963, just a second, I'll just put out the exact numbers. It's close to 1,000 compared to just about 400-odd numbers we did Q1 of last year. So it has almost doubled. However, our business has also grown. So the percentage is at around 8% to 9% of retail. We wanted to grow it to about 15% to 20% this year. So that continuous work is happening. The good thing is Bajaj Finance has taken off.

Got it. That's very helpful. Sir, any additional partnerships that we are looking at to penetrate this further or this would be good enough for us?

So continuous work is going on there. We have several partnerships right now. One is Chola, one is TVS, one is Bajaj apart from the banks, nationalized banks. So we have sufficient partnerships. I think the key today is to grow the current partnerships that we have in terms of getting it financed. So I'm sure that will give us reasonable growth. And we will look at regionally if any specific financial support is required for growing business in that particular region.

Got it. Sir, last question was on the -- maybe future things. So are we at any point looking at tiller exports or it's just not competitive with China, in the other countries like neighboring regions where tillers are used?

We are exporting currently, but in very small numbers. Last year, we did around 300-odd numbers of exports. That's why I said it's very small currently. But we believe there is a good opportunity in terms of a reconfigured tiller that can be sold in the European market. Work is going on, on that. And it will be a completely new technology in terms of tiller, which will be launched both in the Indian market as well as internationally. One is, this will be a geared tractor -- I mean, geared tiller compared to a self-driven tiller today. It will have differential -- these features are not available on current tillers. So it will be a tiller which can give us good growth in the international market. That is number one. Number two, we are also looking at EV, that is electric tillers and weeders which we believe will have a market internationally as well.

Got it. Sir, anything on the African market? I read that the market...

Yes. Africa, I'm very happy to state that we have seeded, we have started sending our 75 horsepower tractors that we developed, which we said we are developing last time we were on the call. But now we have seeded that into African market, and we are very hopeful that that will give us a good standing in the African market. But lots of work to be done in the African market. We need multiple nodes there, 60 horsepower, 72 horsepower that we have now, and we will have to work on it continuously. And we believe that's a future growth market for us, especially on the higher horsepower tractors.

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

So I just wanted to know, we have seen a decline in July volumes year-on-year despite strong 1Q weakness in July. Can you address this, sir? Are you seeing any moderation in demand?

Yes. July last year had a very large base and especially on the tiller volumes. And there is like -- I would like to reiterate, there is no issue on demand in tillers and we expect the growth to continue, at least till September, and that was the outlook I gave in the beginning that at least till September, I see the industry doesn't have a problem with the monsoon or the rainfall so far. But the key issue is going to be the tariff output and the rabi crop sowing that will happen. And that all depends on the next 20 days rainfall for the first part and the remaining of the monsoon, how it will play out for the rabi crop. So other than that, I believe that the tiller volume will continue to grow at the space we are growing. We are talking anywhere between 16% to 20% for the last few quarters now. That will continue. The power weeder segment, we have been clocking 50% to 60% growth for the last several quarters now. That will continue. So I don't see any issues there. Now the tractor volumes, as I said, is to be done by acquiring market share and that will be done by building a product portfolio that is in the works. So you will see us growing gradually quarter-on-quarter.

Yes, sir. That was helpful. I have another question on the broader mechanization upcycle. Any thoughts on that, sir, especially in the tiller segment? Will that be -- we'll be able to help smaller and marginal farmer segment? How do you think on that, sir?

Yes, yes, I agree with you. I mean this small and marginal farmer segment is huge. And I have said before that we will be launching many innovation in this segment and very happy to state that we are ready with our product between tiller and tractors that I've been talking about for a long time. And the first of those products will roll out of the factory from this month onwards. And we should be able to do substantial volume in Q3 and Q4 on those products.

Sir, before somebody joins from the queue, you said there is a mid-product now we are developing. I mean cost-wise, I mean, how it will be -- how much premium to the tillers and what will be the advantages compared to tiller in the product, sir?

Yes. The price of the product will be very close to the tiller, but the work of the product will be very close to the tractor.

I see. Okay, okay. So -- but already it's -- I mean, globally, it's a established product, sir. I mean, this product...

No, no. This is an innovation, Mr. Jayaraj that -- this will be one of its kind product that we'll be bringing into the market. This is an innovation from the VST R&D center.

I see. Okay. We'll wait for the product, sir. Before somebody joins on the queue, I'll read some from the question box. Somebody has given some questions. I'm just reading from the chat box, sir. What is the capital allocation policy since I see significant capital being deployed in low-yielding mutual funds and equity shares? These are not in the long-term interest of the shareholders unless the capital is deployed in the business eventually. So basically, any update on the sale of the noncore assets? There are 2 questions, sir. One is the investments on that. Second one is on non-core assets, basically I think talking about the land.

Understood, understood. So I think let me answer the first one. The policy is very clear to maximize shareholder value. That's very clear. That means that the deployment of the capital that we have should be done strategically and we are exploring several opportunities for deploying that capital. Hopefully, in the next 18 to 24 months, we should have some good deployment of this capital. Coming to the non-core assets, as of now, there is no development on it.

Okay. Sir, then this next emission norm is coming up, TREM 3A from I think April '28 and TREM 5 from '32. As of now that are the dates announced I think. So what would be the -- first the 3A which is coming up in maybe in 1.5 years' time. Will it have any major implications for our products, sir?

See, there are 3 stages in the norms -- emission norms are being implemented, first of which is from October '26. Stage 5 for all products less than 25 horsepower, both for tillers as well as tractors. And VST is fully prepared for it and completely ready for it. Then the next implementation in TREM 3AA from April '28, which also VST will be fully prepared. We have full capability to achieve that. And after that, the complete range of tractors will move to Stage 5 as per the current notification in 2032, and we will be ready for that as well. Already work on all the fronts are -- some of it already completed, which is October '26 is already completed and moving into production. And as far as April '28 and October '26 is -- sorry, October '32 -- April '32 is concerned, we will be fully ready for it.

And what can we -- any major changes, sir? What can be the cost implications broadly, not numbers?

Yes. Major cost implications will come when every tractor moves to Stage 5 in 2032 when the DOC, DPF, everything will have to be implemented. And then there will be cost implications at that time. See, the current cost of that technology on the tractor is about 25%, 30% of -- it will go up. But that is the current cost. How technology will evolve, how costly or cheaper will that be in 2032 is difficult for me to say at this point in time. But currently, that technology will cost you about 25% to 30%. But the normal trend is -- with time, this technology starts costing lower because the volume starts climbing across the globe.

Okay. And what the about '26, now it's coming up, less than 25 HP? That will be applicable for tillers also, sir?