[Ed. Note – This article does not meet our new editorial guidelines, nor does the company profiled meet our investment criteria. Both will be removed from the site in the future.]

VST Tillers Tractors Limited (BSE:531266, NSE:VSTTILLER), a mid cap company (Rs 3028M), promoted by VST Group and a joint venture with Mitsubishi Heavy Industries (OTC: MHVYF) and Mitsubishi Corporation of Japan, in 1967. In 1984, there was a new techno-financial collaboration agreement with Mitsubishi Agricultural Machinery Co Limited (Japan), for producing 18.5 hp 4 wheel drive tractor. The founder of the VST group was V S Tiruvengadaswami Mudaliar.

VST Tillers (VTTL) is engaged in the business of power tillers, tractors and diesel engines, precision components and paddy transplanters. It has emerged as market leader in power tiller market with growth rate potential  of around 20% per year.

Its manufacturing facilities are located in Whitefield Industrial area close to the IT city of Bangalore.  As of September 2012, the production capacity of the company was 25,000 power tillers, 32,000 engines and 5000 tractors. Its  power tillers and tractors are used in the agricultural sector in India and are also exported to Africa, Middle East, Russia and Turkey. The precision component parts are exported to Europe, Korea and Thailand. During the FY2011- 2012, VST Tillers Tractors Co started construction on a new  tractor plant located in Hosur, Tamil Nadu, near Bangalore, with an installed capacity of 36000 units per annum, bringing the total capacity to 41000. New capacity is expected to be ready by first quarter of  FY 2013 – 14, which is financed through retained earnings as well as debt.

In Whitefield Industrial area it has 75,000 Sq. meters of land and a built up area of 15,000 Sq. meters (approx). The Manufacturing capacity of the company is presently 25,000 Power Tillers and 32,000 engines.  This capacity can be increased by nearly 30% with the existing land and infrastructure.

The company has set up in-house design and development department for upgrading the technology in line with latest customer requirements. Apart from upgrading the existing products through innovation, it also  develops new products based on new technology. VTTL has achieved ISO-9001 certification for its Quality Management System in January 1998.

The company has a strong nation-wide dealer network, supported by sales outlets  and efficient service facilities, supply of spares and components as well as the necessary technical  service tools and equipments. Its strength also lies in service information management,  i.e. making available service information through technical literature, instruction manuals and info systems etc., and imparting training to dealers’ service providers as well as end users, mainly the farmers.

VST Tillers & Tractors Co has been  continuously improving its performance. It has been paying generous dividend as shown below:

FY 2011-12   90%

FY 2010 -11  90 %

FY  2009 – 10   75%

FY  2008 – 09   75%

In 2010, it declared bonus shares in the ratio of 1 share on every two shares held and increased dividend later on expanded equity.

In spite of recession in farm machinery business, the company  showed improvement in net profit and margins as shown below:

Present equity is 86.4 million rupees, Book value : Rs 236

Current market price  Rs 350, on EPS of  57.74 PE ratio is 6.2, industry PE is 11.

RONW figure compares favorably with other players in the industry.

Considering  the low PE and impending capacity expansion for tractors, the share is a good long term buy. We are projecting EPS of 61 during FY 12-13 and EPS of  65 for FY 13-14, target price in two years is around 415 – 450  range.