VST Tillers Tractors Ltd Management Discussions.

The Global Economy

The global economy was stable throughout 2019, until it was impacted in the last quarter due to the rapid spread of the Covid-19 pandemic. The global GDP growth stood at 2.9% in 2019, recording slower growth in comparison to the previous year. Vulnerabilities in global growth were mainly exposed on account of trade conflicts and a sustained dependence on the US. As Asias biggest economies faltered and Germany barely dodged a recession, an escalation in the trade war between the worlds biggest economies, the US and China, was one of the major reasons for the slowdown.

Amidst elevated uncertainty on trade policy, business sentiment across major economies continued to deteriorate, contributing significantly to a global economic weakness. Besides, reservations around BREXIT, geopolitical tensions, and stress in key emerging market economies continued to weigh on global economic activity.


The recent Covid-19 pandemic has posed previously unseen and unfathomable challenges. Not only is the global economy reeling under its pressures, job losses, pay cuts and loss of lives continue to inflict a heavy toll on human beings. As business activities across the world halted, owing to countrywide lockdowns, it added on to the struggles of an already slowing economy. Many countries have introduced new policies and stimulus packages to reinstate the economy back on track.

However, keeping in mind an extremely challenging scenario, global growth is expected to soften over the course of the next two years. It is projected to de-grow to -4.9% in 2020 due to major disruptions in global supply chains and international trade due to the Covid-19 outbreak. Supportive macroeconomic policies can help to restore confidence and aid economic recovery as it is expected to improve sentiments gradually, to register growth of 5.4% in 2021.

The Indian Economy

Recognized as one of the fastest-growing emerging economies in the world, the Indian economy recorded a GDP of 4.2 % in FY 2019-20, declining in comparison to the previous year.1 Indias economic growth decelerated from mid-2018 and GDP growth slipped throughout 2019. One of the major reasons for this decline was the overall slowdown in the global economy. Domestic factors like slowdown in manufacturing and construction and a steep decline in consumption adversely affected small, medium and large enterprises, resulting in a negative impact on the GDP.

Even before the COVID-19 pandemic, the economy continued to witness turbulence. The situation has been further aggravated by the demand, supply and liquidity shocks inflicted by the virus outbreak. The nationwide lockdown added fuel to fire, as economic activity came to a complete standstill, adversely affecting the GDP.


The pandemic is expected to have far-reaching economic and social consequences for the region, with strong cross-border spill over effects from trade, tourism and financial linkages. The Indian economy is projected de-grow by -4.5% in FY 2020-21, but, its economic recovery is anticipated to be smoother and faster than many other advanced countries. The growth rate of the Indian economy is projected to be 6% in FY 2021-22, with government initiatives playing a crucial role in its road to recovery. The government has announced major initiatives to revive the economy and improve investor sentiments. The RS. 20 lakh crore stimulus package, investments in industries and the agricultural sector, is expected to enable recuperation of the Indian economy. Reforms, fiscal measures and a greater thrust on digitization is likely to create new opportunities of growth and is anticipated to further accelerate FDI inflows to the country.1

The Indian Agriculture Equipment Industry

India is the second largest market for agriculture equipment in the Asia Pacific region. Northern States such as Punjab, Haryana, Uttar Pradesh (particularly Western and Tarai belt) have been witnessing growth at a faster pace in mechanization, than Western and Southern states of the country like Gujarat, Maharashtra and Rajasthan.

Across the entire farming life cycle from tilling, seed bed preparation to harvesting & threshing, different mechanized and semi mechanized, self-propelled and tractor powered agriculture equipment are used across India. A significant proportion of farmers in the country are shifting their preferencesfrommanualtomechanicalequipment,toenhance efficiency and improve productivity. Given that nearly 85% of the land holding is less than 10-hectare, demand for smaller horsepower tractors and power tillers is steadily increasing. Easy financing options, government support in the form of subsidies through Sub-Mission on Agriculture Mechanization Scheme, a growing population and an increasing demand for food continues to augur demand in the agriculture equipment market. The Indian agricultural equipment market was worth RS. 977 billion in 20192.

India is also one of the largest tractor markets in the world, selling 600,000 to 700,000 tractors per annum, on an average. Tractorization has been happening at a faster pace than the overall mechanization process, which is evident through the increase in sales of tractors over the years. The country remains a highly lucrative tractor market as shortage of agricultural labour becomes profound and farmers continue to invest in innovative business models such as custom hiring solutions for tractors.

Demand for tillers is placed next to that of tractors as they are predominantly used in small fields where usage of tractors is not viable. Power tillers have higher demand in low land flooded rice fields, and hilly terrains. Hence, the market for power tillers in India is mainly concentrated in the eastern and southern parts of the country owing to the small land holdings per farmer in these regions and high cultivation of rice crops.

The COVID-19 outbreak had a negative impact on the agriculture equipment industry, given the countrywide lockdowns imposed from the end of March. However, the agriculture equipment industry plays a vital role to bridge the gaps in the food value chain by offering necessary equipment, maintenance and support. New strategy, innovation and digital technologies are likely to have a positive impact on the sector.

The Union Home Ministry, in a very significant move, has excluded movement of farmers, farm labourers and harvesting and sowing-related machines from the purview of the lockdown. Apart from this, the government declared a financial package of RS. 1.7 trillion3, mostly to protect the vulnerable sections, including farmers, from any adverse impacts of the pandemic. These measures are likely to revive the agricultural industry, which in turn is expected to be beneficial for the Indian agriculture equipment industry.

Industry Growth Drivers

Labour Shortage: Labour shortage is one of the prime reasons for resorting to mechanical tools and techniques. As large scale migration continues from rural to urban areas along with a preference for other means of livelihood among agricultural labour, acute shortage of manpower has been noticed in the agricultural sector. As a result, demand for farm machines have risen significantly.

Ease of Financing: In the past few years, a number of banks and microfinance institutions have been set up across rural India. This has provided easy access to credit facilities for farmers, allowing them to easily purchase farm tractors.

Government Incentives: The Indian Government has provided incentives in the form of subsidies and easy financing schemes to drive growth of the farm equipment market in India.

Emergence of Contract Farming: Contract farming is opening new opportunities for farmers and it is expected to boost the agricultural equipment market. Farmers get the benefit of technology, training and financing with the help of contractors and it supports them to adopt mechanized farming practices with greater ease.

Large Untapped Market: The market for tractors and other agricultural machineries is vast but, a large portion remains untapped due to lack of awareness. In the days ahead, it is likely to be a major growth driver for the industry.

Rising incomes: Strong economic growth and improved agricultural productivity has increased income levels of rural households over the last few years. Rising incomes have enabled farmers to spend on agricultural mechanization procedures.


The Indian agriculture equipment market is expected to grow at a slower pace till 2022. But, the market is anticipated to witness considerable growth on account of government initiatives which aim to double farmers income in the country by 2025. It has been projected to grow at a CAGR of 9.9%4 during the period from 2019-2025. Meanwhile, the agricultural tractors market is projected to witness a CAGR of 4.5% during 2020-20255. Government initiatives for rural development and farm mechanization, enhanced rural wages and scarcity of farm labour is expected to further contribute to the growth of tractor and power tiller volumes over the long term.

Company Overview

About Us

Established in 1967, VST Tillers Tractors Ltd. belongs to the renowned, century old business house VST Group of companies. A reputed group from South India, it started business as a retailer of petroleum products and distributor of Automobiles in Karnataka and Tamil Nadu. VST Tillers Tractors Ltd. was promoted by VST Motors as a joint venture with Mitsubishi Heavy Industries Ltd, Japan. The company is now the largest manufacturer of Power Tillers in India. Introduced over five decades ago, VST SHAKTI is Indias No 1 Power Tiller brand. With a continuous focus on growing opportunities in the global arena, the company has expanded its presence in more than 20 countries and established itself as the most preferred brand for compact tractors.

SCOT Analysis


The Company has experience of more than 5 decades in the industry along with strong pipeline of products in both tiller and tractor segment giving it an edge over its competitors. Further, it has entered into various collaborations and strategic alliances with key players enabling it to efficiently pursue its growth strategy. It enjoys sustained market share in domestic and international market and has a strong network of dealers and vendors enabling it to ensure steady supply of its products. The manufacturing facilities of the Company are equipped with state-of-the art machineries enabling to produce superior quality and cost effective products.


Majority of farmer community in India comprises of small and marginal farmers and only affordable farm mechanisation solution is the power tiller. Thereby, demand for power tillers is expected to further increased with the rising cost of labour and scarcity of machine on hire during the season time. Further, agriculture equipment market is expected to rebound, after temporary slowdown, on the back of healthy monsoon prediction and favourable government policy. This is likely to give a favourable push to the Companys operations in near future.


For power tillers, farmers are dependent on government subsidy. Moreover, non-availability of retail finance may hamper the demand for power tillers. The tractor industry consists of many small and big players, thereby the company faces high competition in tractor industry. This may result in pressure on margin and profitability.

Business segment overview

Power Tiller Business

The company is one of the largest manufacturer of Power Tillers in India with market share ~46% in FY 2019-20. VSTs brand ‘VST SHAKTI, introduced five decades ago, is countrys number 1 Power Tiller brand. Power tillers are best fit for small farms as they are cost effective, consumes less fuel, has lower horsepower and low maintenance. Over the years, the company has built a strong distribution network witRs. 321 dealers enabling it to ensure steady and uninterrupted supply of its products to the remotes village of the country. The company has also established a strong distribution network in the overseas market including Africa.

During the year under review, sales volume of tillers stood at 19,302 tillers as compared to 22,547 tillers in the previous year. The marginal slowdown was on account of loss of sale in the month of March 2020 due to outbreak of Covid-19 leading to country wide lockdown. Further, lower release of subsidy from the government also impacted the growth of the segment.

However, the company has been working on expanding its product offerings into value added products which will lead to reduce dependency on subsidy from the government. VST also plans to further consolidate its market presences in the low horsepower farm mechanization segment.

Tractor Business

The company has pioneered in the compact tractor segment with a strong emphasis on providing technologically advanced solutions to farmers. VST has built a strong network of distributors in domestic as well as international market. In domestic market, the company has 296 distributors. While, in the overseas market the company has established a strong distribution network in various countries of Western Europe including Netherlands, Germany, Belgium, France, Spain, Portugal. The Company is planning to foray Eastern Europe countries as well in the near future.

During the year under review, the company has initiated production & sale of high horse power tractor. With the endeavour to be present across all categories of tractor segment in India, the Company is planning to launch new generation tractors and tailored solutions in the compact segment. The number of tractor sold in FY 2019-20 stood at 7,147 tractors as compared to 8,198 tractors in FY 2018-19.

Financial Review

The information provided in this section relate to the financial results pertaining to the year ended 31st March 2020. The financial statements of the Company has been prepared in accordance with the Indian Accounting standards (Ind AS), prescribed under Section 133 of the Companies Act, 2013, read with the Companies (Indian Accounting Standards) Rules as amended from time to time. The table below provides an overview of key financial parameters (Rs. in lakhs)

Particular 2019-20 2018-19 YoY Change (in %)
Revenue from operation 54368 61480 (12)%
PBT 2310 7153 (68)%
PAT 1825 4552 (60)%
Net Worth 57691 58990 (2)%

Risk and concern

Dependency on government subsidy

Significant percentage of total products i.e. power tillers and compact tractors of the Company are sold under the governments subsidy scheme. In case of reduction in subsidy allocation might negatively impact the sales volume of the Company.

Mitigation: The Company has joined hands with NBFCs and banks to ensure easy availability of credit to its customers. Further, it is also planning to diversify its products offering into various value added products which are not linked with government subsidy.


The Company faces stiff competition from both domestic as well as international players. This may result in stress on profit margin or loss of sales to peers.

Mitigation: On the back of its rich experience, expertise and technical know-how, it has established a strong market position and brand loyalty for its products in domestic and international market. Further, its ability to offer unique, innovative and cutting-edge technology products gives it a competitive edge over its competitors.

Talent retention and acquisition

Given the nature of the Companys operation, it is very vital to attract and retain employees with the required skill set, expertise and knowledge. Inability to retain or attract key industry talents might have adverse impact on Companys operation.

Mitigation: The company has a strong human resource team which constantly work towards attracting, nurturing and retain key talents. Further, it also invests significantly in various training and development initiatives to upgrade the skills of its employees at par with the changing business environment.

Rising input cost

Hike in price of key raw materials due to demand and supply gap may lead to rise in input cost, putting pressure on the Companys margin and profitability.

Mitigation: VSTs main focus has always been on cost optimisation thereby creating value for customers. It undertakes several cost optimisation projects focused on material costs, employee costs and other fixed & overhead costs. Through its cost optimisation strategies, it ensure products are reasonably price without putting pressure on the margin or profitability level of the Company.


The outbreak of COVID-19 pandemic has caused unprecedented challenges on economies across the globe. However, the Farm sector is expected to grow at a faster pace than last year on the back of favourable monsoon condition and government policies. The Company plans to invest significantly towards ramping up its production and focus on new product development. It aims to maintain its leadership position in the market as well as increase its market share further to more than 50% in power tiller segment. It also aims to provide complete solution in the high horsepower tractor segment. The company has set an ambitious target of being RS. 3000 crore company by 2025 in diversified farm mechanisation products and solutions.

Human Resource

The Company considers its people strategy, capabilities and well-being of its employees as a key enabler to achieve organizational goals. The people strategies of the company are in alignment with companys vision of being RS. 3000 crore company by 2025. The Company strives to create a work culture that is open, inclusive and promotes diversity. It also significantly invest towards training and development of new as well as existing employees in order to upgrade their skills in line with changing business environment. As on 31st March 2020, the employee strength of the company was 758 employees. As part of the vision of the Company the focus is to create a large (5X) leadership pipeline.

Internal control systems and their adequacy

The Company has put in place adequate internal financial controls over financial reporting Systems commensurate to the nature of its business and complexity of its operations. These are regularly tested for their effectiveness by Statutory as well as Internal Auditors. The Company periodically conducts physical verification of inventory, fixed assets and cash on hand and matches them with the books of account. Explanations are sought for any variance noticed from the respective functional heads. The Significant observations made by the Auditors and follow up actions there on reported to the Audit Committee. The Audit Committee reviews the adequacy and effectiveness of the Companys Internal Control Environment and monitors the implementation of the Audit recommendations.


Certain statements in the MDA section concerning future prospects may be forward-looking statements which involve a number of underlying identified / non identified risks and uncertainties that could cause actual results to differ materially. In addition to the foregoing changes in the macro-environment, global pandemic like COVID-19 may pose an unforeseen, unprecedented, unascertainable and constantly evolving risk(s), inter-alia, to the Company and the environment in which it operates. The results of these assumptions made, relying on available internal and external information, are the basis for determining certain facts and figures stated in the report. Since the factors underlying these assumptions are subject to change over time, the estimates on which they are based, are also subject to change accordingly. These forward-looking statements represent only the Companys current intentions, beliefs or expectations, and any forward-looking statement speaks only as of the date on which it was made. The Company assumes no obligation to revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise.