Delivering sustainable performance
1. Global Economy
The global economy appears to be on track for a gradual recovery from the significant
impact of the pandemic and Russias conflict with Ukraine. Chinas economy has reopened,
supply chain disruptions are easing and energy and food markets are stabilizing. Most
central banks have tightened monetary policy to mitigate inflationary pressures. However,
the rapid increase in interest rates has introduced strains in certain parts of the
financial system, leading to concerns about financial stability due to a number bank
failures.
Despite the difficulties, major emerging economies are showing signs of recovery from
the third quarter of the year. Subsequently, the baseline projections show that growth
will slow, from 3.4 percent in 2022 to 2.8 percent in 2023. before settling at 3.0 percent
in 2024. The global GDP growth is likely to be -2.9% this year. Global inflation is
forecast to moderate to 6.6 percent in 2023 and 4.3 percent in 2024.
2. Indian Economy
As per IMF, Indias GDP was originally forecast to increase at a rate of 5.9% in FY23,
but given the economys resilience, it is now anticipated to rise at a rate of 5.1% in
FY23 and then at a rate of 5.3% in FY24. The central government is likely to meet its
fiscal deficit target of 5.9 percent of GDP in FY23/24 and combined with consolidation in
state government deficits, the general government deficit is also projected to decline.
India is on significantly stronger ground in 2023 after enduring multiple shocks to its
macro stability in 2022. The countrys current account deficit is decreasing, inflation is
moderating, and fiscal pressures are under control. Indias economy, in contrast to the
rest of the world, has not slowed down; instead, it continues on a strong positive growth
trajectory. Real GDP growth estimates for the countrys 2023- 2024 period, including those
from the RBI, range between 5% and 5.5 % . Thanks to strong economic growth, India
overtook the UK to become the fifth-largest economy in the first quarter of FY 2022-23.
2.1 Government Initiatives
Through its regulatory frameworks and other support mechanisms, the Central Government
significantly influences the agriculture sector. In the Union Budget 2023-24, Rs. 9,504
crores have been allocated to the Department of Agricultural Research and Education. As of
December 2022, 18,305 farm machinery banks, 457 Fli-Tech hubs, and 21,528 Custom Hiring
Centres had been created under the Sub Mission on Agricultural Mechanization (SMAM), which
also provided support to state governments through training and demonstrations of the
usage of agricultural machinery. 2.8% of the Union Budget goes to the Ministry of
Agriculture.
NABARD has been mandated with the creation of a blended capital fund with a focus on
the agricultural startup ecosystem which will be used to fund agriculture and rural
enterprise start-ups that are related to the farm product value chain.
2.2 Indian Agriculture and Farm Mechanization Industry
Over the past six years, the agriculture industry in India has witnessed strong growth
and registered a CAGRof 4.5% . According to the Economic Survey 2022-23, this has allowed
agriculture and related activities to significantly contribute to the nations overall
growth, development, and food security.
In recent years, the nation has also become a net exporter of agricultural goods, with
exports reaching a record high of $50.2 billion in 2021-22.
The Economic Survey contends that the key to increasing productivity is to find
machinery that is practical and effective for small farm holdings, given the declining
trend in the average size of families owning agricultural holdings. According to the
Survey, farm mechanization also lowers cultivation costs and the labour-intensiveness of
agricultural work. The essential need for a dynamic R8<D environment fosters
academia-industry collaboration to invent and create non-tractor agricultural equipment
that meets the demands of small 8< marginal farmers in India and has an overseas
market.
2.3 Indian Tractor Market
The current year might set a record for domestic tractor sales, bringing the industrys
streak of consecutive years of increase to three. This resilient performance is despite
challenges from both the pandemic blues and general inflationary tendencies.
The sales volume trend suggests a strong demand momentum since April this year, which
has been aided by above-average rainfall with decent farm income, a decreased availability
of farm labourer, the introduction of smaller power tractors, lower loan rates, and strong
minimum support prices by the government.
Opportunities
• 400 million tons of food demand by 2025
• Potential to boost agricultural productivity
• Government Incentives for agricultural development
Challenges
• Resource incentive Agricultural and Low Farmer Productivity
• Hindrances such as lack of infrastructure, inefficient supply chains, and poor
digital adoption.
2.4 Indian Small Farm Mechanization Market
Small and marginal farmers play a crucial role in Indian agricultural market,
accounting for 80% of the farming community. They often face many challenges, including
limited access to resources, low productivity, and the lack of modern agricultural
practices. Mechanization through small farm machinery has the potential to address many of
these issues and enhance the livelihoods of farmers.
Opportunities -
• Vast agricultural sector - India has a significant portion of population engaged
in farming that creates a substantial demand for small farm mechanization
• Increasing adoption of technology - With growing internet penetration, farmers
are now more aware and gradually are adopting modern practices and machinery
• Government Support - The Indian government has been emphasizing the importance
of agricultural mechanization and has implemented various schemes and subsidies to
encourage farmers to invest in modern equipment.
• Rising income levels: As income levels rise in rural areas, farmers are more
likely to invest in mechanization to enhance their productivity and yield
• Export potential - There are opportunities for exporting such technology to
other countries with similar agricultural profiles
Challenges -
• Fragmented Market - Indian agricultural market is fragmented and dealing with
diverse and scattered customer base requires adoption to local needs
• Awareness and Education - The need for investing in awareness and education
campaigns to showcase advantages of mechanization
• Seasonal nature of demand - Farming activities are seasonal, leading to
fluctuating demand for agricultural machinery.
2.5 Megatrends in farm mechanization
• Electric Vehicle in the
Agrispace - The time is now
At our forward-thinking tractor and tiller company, we are fully aware of the
transformative potential of electrification in revolutionizing the agricultural machinery
sector. To propel innovation in this domain, we have taken proactive steps by forging
strategic technical collaborations with renowned industry leaders in electric vehicle (EV)
technology. These collaborations exemplify our unwavering commitment to pushing the
boundaries of electrification in agriculture and driving sustainable solutions forward.
3. Company Overview
Our company is a major producer of agricultural gear and equipment in India. The firm
offers a variety of goods aimed to improve agricultural productivity, with a concentration
on power tillers and small tractors. VST Tillers is recognized for providing efficient,
user-friendly, and cost- effective solutions to small and marginal farms.
The company has modern tractor manufacturing facilities located at Flosur, Tamil Nadu,
and Power tiller manufacturing facilities at Malur, Karnataka, as well as a precision
component plant in Mysore. VST has expanded globally with a predominant presence in Europe
in the last 10 years and has become a popular brand for compact tractors.
Modern VST Malur Plant has recently received the IMexI award for exemplifying
operational excellence found on continuous improvement. Our company has spent more than 55
years creating tillers and tractors that may be used in both home and foreign markets. It
is ideally suited for crops like sugarcane, paddy, cotton, vegetables, horticulture
turmeric, ginger, and others. VST smart farm machines are suitable for all phases of
farming and are apt for applications like puddling, intercultivation, bund creation,
earthing up, and de-weeding.
• The brand-new VST 939DI 35hp 4WD Tractor from our firm was unveiled at the Pune
KISAN Agri Show on 15th December 2022. The 3-cylinder Dl engine of the VST
939DI tractor produces 108 NM of torque, making it appropriate for all agricultural
applications.
3.1 SCOT
Strengths
• Domestic tillers have a strong market position thanks to their long history and
extensive dealer network: With a 71% market share in Indias power tiller industry, our
company has a strong brand presence and established market position. This will help the
companys commercial prospects together with the addition of new dealers to its extensive
network of over 650 dealers and rising agricultural mechanization rates.
• Strong financial profile with no debt and sizable cash and liquid investment
holdings: With a sizable net worth of Rs. 82,445.18 lakhs as of March 31, 2023, positive
cash flows, and no debt, our company continues to have a solid financial profile. As of
March 31, 2023, the business still has solid cash positions and liquid investments of Rs.
1,091.85 lakhs. Given modest expenditure needs and ongoing good cash flow generation in
the future, our company is anticipated to maintain its debt-free standing and positive
debt indicators over the medium term.
• Our companys strength is further bolstered by its five decades of rich heritage
and experience, advanced production facilities, and globally acclaimed goods.
Challenges
There are a number of challenges that the Company must get past in order to expand and
become profitable:
• High correlation with monsoons
The growth of the tractor industry is closely tied to the variation of monsoons from
their longterm average. Any notable deviation, particularly if occurring consecutively
over two years, leading to weaker monsoons, may result in a substantial decline in
industry growth. Additionally, concerns arise regarding the potential impact of the feared
El Nino pattern on rural incomes and, consequently, the demand for agricultural equipment,
including tillers and tractors
• Dependence on government subsidy for power tillers the companys business is
highly sensitive to any delays in the implementation of government subsidy for power
tillers by various states.
• Huge competition in tractors:
- The tractor industry consists of many small and big players, thereby the company
stiff competition HHP tractor segment. This may result in pressure on margin and
profitability.
- Ability to market models faster- expanding capacities, large CAPEX infusion for
future growth by key competitors
• Emission norms: Stringent emission norms, such as TREM IV (applicable in the
domestic market) and STAGE V (relevant for international markets), can have a significant
impact on a company, be it Product Development 8< Engineering or Cost of Compliance
• Input Costs The company may face a rise in input costs and experience
pressure on margins and profitability due to an increase in prices for essential raw
materials like steel and components
Opportunities
• Government Initiatives: The Indian government has introduced a number of
programmes and efforts to promote the agricultural industry, including those centred on
farm mechanisation. These programmes encourage, subsidise, and assist farmers in
purchasing agricultural equipment. These initiatives can be advantageous to VST Tillers
Tractors Ltd.
• Modernization of Farming Practices: The agricultural sector in India is
gradually adopting mechanization to improve productivity and efficiency. This shift
presents opportunities for VST Tillers Tractors Ltd to offer advanced and technologically
superior equipment that can assist farmers in modernizing their farming practices.
• Declining labour in agriculture:
As the availability of labour diminishes, there is a growing need for greater
mechanization through the use of tractors and other agricultural machines to compensate
for the labour shortage. This provides opportunity for VST Tillers Tractors Ltd to grow.
• Small and Marginal Farmers:
~ 80% of farmers in India are classified as small and marginal i.e. having less than
one (1) hectares of land and relatively low income than their consumption expenditure. The
need of the hour is to optimise investments in the farm sector, intensify the gains from
cultivable land, bringing the markets closer, and figuring out alternate courses to make
farming a profitable business. Small and marginal farmers, thus, present a substantial
opportunity for tractor companies. By catering to their specific needs with affordable and
appropriately sized machinery, tractor we can tap into this growing customer base, drive
business growth, and contribute to rural development while fostering brand loyalty and
social impact.
Threats
• Growing technological expertise of local players in the export market: One of
the most significant risks of collaborating with local businesses in the export market for
VST Tillers Tractors Ltd is the risk of losing intellectual property rights
• Technology development and new product development for enhanced brand
loyalty-The rapid pace of technological change poses a threat to our brand loyalty, as
customers may seek more innovative solutions elsewhere. To safeguard our customer
patronage, we must adapt quickly, deliver cutting-edge products, and consistently meet
their evolving needs.
3.2 Financial Review
Financial Metrics |
2022-2023 (in Rs crores) |
2021-2022 YoY Change (inRs crores) (in%) |
Revenue from operations |
1006.43 |
853.86 17.87 |
PBT |
123.94 |
132.18 (6.23) |
PAT |
92.36 |
99.31 (7.00) |
Net Worth |
824.45 |
749.53 10 |
Key Ratios
In accordance with the SEBI (LODR) Regulations 2018, the Company is required to provide
details of changes of 25% or more, against the previous financial year in key financial
ratios, along with detailed explanations. Therefore, the key financial ratios are given
below:
Ratios |
2022-2023 |
2021-2022 YoY Change |
Debtors turnover ratio |
9.28 |
11.43 (18.79) |
Inventory turnover ratios |
6.76 |
5.57 21.32 |
Interest coverage ratio |
176.27 |
118.79 48.39 |
Current ratio |
3.28 |
3.44 (4.67) |
Gross profit margin (In %) |
31.8 |
32.29 (1.54) |
Net profit margin (In %) |
9.18 |
11.63 (21.10) |
Debt equity ratio (In %) |
Nil |
Nil |
Return on net worth (in %) |
11.20 |
11.49 (2.59) |
Change in interest coverage ratio is due to increase in EBITA.
3.3 Business Segment Overview Smart Farm Machinery
In the small farm machinery market, our company is actively exploring numerous
cutting-edge innovations and measures to stay at the forefront of technological
advancements. These initiatives focus on bringing innovative products and solutions to the
market, showcasing our commitment to staying ahead in the industry. The company has a
robust network of 660 dealers in the western, southern, and eastern areas for small
agricultural equipment. We are also looking at increasing this to 1000 dealers in the next
two to three years. The power tiller industry in India is around 60,000 units and it is
expected to grow to 100,000 units by the year 2025. We are the leader in this segment with
a 71% market share and sold 38,247 tillers in FY23 buoyed by increased demand.
We are diversifying our product portfolio by introducing products like power weeder,
brush cutter, electric pump, and other spare parts. We have also signed supply agreements
with leading international players for brush cutters and small farm machines.
Compact Tractors
Our company is a leading manufacturer in compact tractors in the country with a horse
power range of 17 to 30. We are focused on catering to the needs of small and marginal
farmers, whose preferred choice is compact tractors, thus making it a crucial part of our
product portfolio. VST is committed to invest in research and development to launch
innovative and quality focused compact tractors. We are also increasing our foothold in
the international markets and are present in 40+ countries.
HHP Tractors
We have a range of tractors with horsepower of 45 & 50 and are on a path to
constantly grow the portfolio. With the partnership with Zetor, we have setup a
state-of-the- art manufacturing facility enabling us to launch products for India and
international markets.
By Q2 of FY24, We plan to introduce its premium line of tractors under the VST Zetor
brand, a move that might not only help the business establish itself as a major tractor
player in India but also increase tractor sales and income. To fill the product gaps, the
company has also launched new products with 28HP, 30HP, 45HP and 49FIP during the year
besides VST Zetor.
International Business
• We have a global presence in Europe, Asia and AfricaThe companys tractors are
available in the EU markets under the brand FIELDTRAC, and adhere to the latest EU
standards. As part of its expansion plans, the company aims to enter the US market with
its compact tractor range and electric tractor range, targeting new opportunities.
Additionally, the company is exploring entry into the African market through VST-Zetor
higher HP Tractors, seeking to tap into emerging prospects in the region.
3.4 Risks and Mitigation
We acknowledge that proactive risk management is a critical component of good corporate
governance and a key facilitator to seizing strategic opportunities.
Risks |
Mitigation |
• Farmers purchasing power: Small and marginal farmers
with little access to capital, find it challenging to purchase mechanized equipment. Along
with crop seasonality, their limited purchasing power prevents them from investing in new
agricultural machinery. |
• The Company has been continuously working with many NBFCs and
banks to make it simpler for farmers to obtain finance in order to purchase its mechanized
goods. Additionally, numerous government incentives are now enabling farmers to purchase
its diverse product array. |
• Offering distinctive products: When compared to other
industrialized countries, Indias agricultural ecology is quite distinctive. The terrain
is quite broken up. Geographically, by crop, and in accordance with regional agricultural
infrastructure, farming in India varies. This calls for the creation of items that can be
easily modified to suit various demands and circumstances. |
• The Company carefully analyses farmer feedback on the field and
adjusts the development of its products as necessary. The Company is launching new
products based on the crops and geographic regions, which will increase yield for the
farmers. Through its distributor network, the Company also hosts training courses to
deliver product information, perform demonstrations, and organize other product-knowledge
workshops. |
• Competition: In both local and foreign markets, there is
fierce rivalry in the tractor industry. Sales and profit margins are also under pressure
from the introduction of new companies. |
• The Company has a competitive advantage over its rivals thanks to
its ongoing innovation, frugal engineering, and cutting-edge goods. The firm has
introduced new and cutting-edge items, and many more will be introduced soon. |
• Environmental Risks: Tractor manufacturers rely heavily
on demand from rural areas, which can be affected by adverse weather conditions such as
droughts and floods, which puts these manufacturers at risk. Construction and agricultural
equipment manufacturers are also at risk due to potential changes in emission control
regulations, as the government seeks to reduce the negative impact of vehicle emissions. |
• Our products meet the new regulatory standards. Since our company
generates the majority of its revenue from the sale of low horsepower tractors and power
tillers, which are not subject to the mentioned regulations, the risk of credit loss
related to these regulations is minimal. |
3.5 Outlook
The company has witnessed a 20% growth in power tillers business and expects this to
continue for the next two-three years. The company is targeting a CAGR of above 20% in
three years. We expect the tractor business to grow faster than industry as the company is
entering into utility tractor space and already has a "good presence" in compact
tractors. We are looking to create a unique customer experience and provide superior
customer service while creating a global brand.
With new product launches, import curbs on power tillers, and a strong focus on the
tractors segment, the company is on the growth path and set to achieve its top-line target
of becoming Rs. 3,000 crores company by FY26.
3.6 Internal control systems and their adequacy
In accordance with the nature of its activities and the complexity of its financial
reporting systems, our company has put in place effective internal financial controls. At
the Board level, we have a clearly defined risk management strategy that is based on
pre-identified risk categories, risk occurrences, or risk variables that call for routine
assessment and probability-based actions. Statutory and internal auditors do frequent
effectiveness tests on these. A physical audit of our companys inventory, fixed assets,
and cash in hand is done on a regular basis, and the results are compared to the books of
accounts. Any difference observed is sought an explanation from the relevant functional
heads. The Audit Committee evaluates the efficacy and sufficiency of the Companys
internal control environment and keeps track of how the Audits recommendations are being
carried out.
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