VST Tillers Tractors Ltd Management Discussions

GLOBAL ECONOMY

In 2024, the global economy displayed moderate stability amid a complex mix of economic, geopolitical, and policy headwinds. According to the IMFs World Economic Outlook, global GDP growth eased to 3.3%, with developed economies slowing while emerging markets, especially in Asia, maintained momentum.

Key challenges included ongoing geopolitical conflicts (e.g., Russia-Ukraine war, Red Sea disruptions), supply chain strains, and shifting climate policies. Despite this, the US economy grew by 2.8% on the back of strong employment, while the Eurozone lagged at 0.9%, with Germany slightly contracting. Emerging Asia led global growth at 5.3%, driven by tech and infrastructure investment, with China contributing 5.0% growth, supported by policy stimulus and a stabilising property sector.

Global inflation declined to 5.7% from 6.7%, with advanced economies projected to reach targets by late 2025. Looking ahead, global GDP is forecast to grow at 2.8% in 2025 and 3.0% in 2026, underpinned by US resilience, Asian growth, and Eurozone recovery. Inflation is expected to fall further, to 4.4% in 2025 and 3.5% in 2026, with regional divergence in monetary policy.

Throughout the current FY 2024-25, Indias economy has maintained a consistent pattern of growth and stability, reinforcing its standing as a leading major economy globally in terms of expansion. Data from the National Statistical Offices (NSO) Second Advanced Estimate (SAE) indicates a projected real Gross Domestic Product (GDP) growth of 6.5% for FY 2024-25. This continuing upward trend underscores the nations strong economic base, supportive governmental strategies, a vibrant services sector, and robust domestic demand, all contributing to a positive outlook for Indias long-term economic advancement.

Key to this enhanced growth path and increasing self-reliance have been substantial governmental reforms and significant investments directed towards both physical and digital infrastructure, alongside initiatives such as ‘Make in India and the Production-Linked Incentive (PLI) scheme.

The services sector in India demonstrated a steady expansion of 7.2%. This growth was fuelled by strong performance across a range of areas, including finance, property, professional services, public administration, and defence, amongst others.

Indias economy is projected to grow between 6.3% and 6.8% in FY 2025-26. This trajectory positions India to become the worlds third-largest economy by 2030. Growth drivers include infrastructure investment, greater private sector capital expenditure, and financial services expansion. Ongoing reforms further support this advancement. The government focus on capital expenditure, prudent fiscal management, and measures to boost confidence, create a supportive environment for investment and consumption. Programmes like Make in India 2.0, ease of doing business reforms, and the Production-Linked Incentive scheme are strengthening infrastructure, manufacturing, and exports. This aims to establish India as a significant global manufacturing player. Infrastructure development and supportive policies will facilitate capital formation. Rural demand will also receive a boost from initiatives like the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY).

(Source: Press Information Bureau)

Indias agriculture sector is undergoing a structural evolution driven by the increasing need for productivity, climate resilience, and rural prosperity. A critical enabler in this journey is farm mechanisation, which enhances operational efficiency, reduces labour dependency, and improves crop outcomes. The Indian agricultural machinery market, valued at 1.23 trillion in 2024, is poised to grow to 2.69 trillion by 2033, reflecting a robust CAGR of 8.63%. Despite this momentum, mechanisation levels in India remain modest at approximately 47%, with significant room for growth especially among small and marginal farmers.

At the heart of Indian agriculture are small and marginal farmers (SMFs), who constitute more than 85% of the countrys total operational holdings. Cultivating land parcels under two hectares, SMFs play a vital role in ensuring national food security, supporting rural employment, and contributing to household-level nutrition. However, their journey towards mechanised, market-linked agriculture remains fraught with structural and financial barriers.

Recent nationwide surveys and field assessments indicate that SMFs are facing multiple transitions economic, environmental, and demographic:

At VST, our legacy and commitment lie in designing compact, efficient, and accessible mechanisation solutions specifically tailored for small and marginal farmers. Our product portfolio including compact tractors, power tillers, and precision implements is built with a focus on:

The path ahead for Indian agriculture will be defined by technology adoption that is inclusive, efficient, and climate-responsive. For small and marginal farmers, the transition to mechanisation must be enabled through supportive policies, innovative financing, and adaptable products. VST remains strongly aligned with this mission bridging the mechanisation gap by empowering farmers at the grassroots.

Rising labour shortages are boosting demand for small farm mechanisation. In a changing policy and climate environment, we are confident that rural enterprise, precision farming, and sustainability will further speed adoption. Our aim is to make mechanisation not just accessible, but aspirational for every stakeholder shaping Indias agricultural transformation.

India, the worlds largest tractor manufacturer, is poised to surpass 1 million domestic tractor sales by FY 2025-26, driven by robust rabi and kharif seasons, favourable monsoons, and rising mechanisation.

In FY 2024-25, retail sales dipped slightly to 8,83,095 units, down 1.04% from 8,92,410 units in FY 2023-24. Despite this, projections indicate a sharp rebound to 9,75,000 units in FY 2025-26, supported by strong crop yields, improved MSPs, and rising demand from construction and allied sectors.

(Source: FADA,Tractor Junction)

VST Tillers Tractors Ltd. (hereinafter referred to as ‘VST or ‘the Company), established in 1967, is a leading force in Indias agricultural mechanisation journey. Headquartered in Bengaluru, India, the Company has played a pivotal role in empowering small and marginal farmers through innovative, accessible, and affordable farming solutions. As one of Indias largest manufacturers of power tillers, VST continues to drive rural transformation with technology-led products.

VSTs product portfolio spans from 2 HP to 50 HP and includes Power Tillers, Power Weeders, Brush Cutter, Tractors, Implements, Spares, Electric Pumps, Aggregates, Diesel Engines, and Precision Components. These offerings are engineered to meet the varied needs of Indian and global farmers, especially in challenging terrains such as orchards, vineyards, and hilly landscapes delivering utility, reliability, and reduced dependence on manual labour.

To support its long-term vision of innovation and global competitiveness, VST is setting up a state-of-the-art Global Technology Centre. This facility will focus on advanced research and development, global product engineering, and integration of cutting-edge technologies. It will also accelerate the creation of farmer-centric, future-ready solutions aligned with modern agricultural practices.

Guided by its "5A Strategy" Awareness, Availability, Accessibility, Affordability, and Ability for penetration into SFM segment. VSTs mission is to inform farmers, increase product reach, ease accessibility, reduce ownership cost, and foster self-reliant innovation. Several new projects are underway to deliver higher technology and greater convenience for smallholder farmers.

In the tractor segment, VST is building a global platform with enhanced capabilities, new-generation engines, and end-to-end innovations. As part of its International Business (IB) focus, the Company is upgrading its product portfolio with 30 HP and 35 HP offerings tailored for export markets. The international arm of the business has grown in the last few years, highlighting VSTs increasing global competitiveness.

Operating in over 40 countries across Europe, Asia, and Africa, VST markets its compact tractors under the ‘VST FIELDTRAC brand, especially in key European Union nations where it complies with the latest EU standards. Significant sales have been recorded in France, Germany, the Netherlands, Spain, Portugal,

Belgium, and Italy. Additional markets include the UK, Ireland, the Canary Islands, Slovakia, northern Hungary, Romania, Ghana, and Congo. Expansion into the United States is planned for 2027, further strengthening VSTs global footprint.

VST Tillers Tractors Ltd. has established a Joint Venture with Czech tractor manufacturer Zetor Tractors a.s. and its parent company, HTC Investments a.s. The new entity, VST Zetor Private Limited, has been incorporated with a share capital of 19 Crores, with VST holding a 51% stake and HTC Investments holding 49%.

The JV is focussed on the sales and marketing of VST Zetor-branded tractors across India, while manufacturing continues at VSTs existing facilities. It has launched its initial lineup of jointly engineered tractors in 42 HP, 45 HP, and 49 HP variants, designed specifically for Indian farming needs

This partnership is strategically expanding VSTs presence in Northern India a region where Zetor enjoys strong brand recognition, unlike VST which is traditionally stronger in the South, East, and West. This brand complementarity is helping the JV penetrate high-potential northern markets.

Small Farm Machines (SFM): We made significant strides in transforming our Power Tiller legacy into a diversified Small Farm Machines (SFM) portfolio. Achieved sales of over 7,500 power weeders, marking a significant milestone in this segment within 2 years. The company also advanced the development and testing of a ‘Made in India weeder, with a commercial launch planned for FY 2025-26. The SFM distribution network was further expanded to a total of 810 outlets across the country.

Tractor Segment: Emphasis on the compact tractor segment resulted in momentum across key markets: Established a strong presence with breakthrough products, models 171, 929, 932, and 939, gaining traction in the market. The tractor dealer network was strengthened to 434 locations, supporting deeper market penetration.

Distribution Initiatives: We continued to broaden our horizons in rural markets beyond traditional farm equipment: The electric pump business registered steady sales in its third year, showing stability across the following period, Ongoing scaling initiatives, including channel partner onboarding and product line expansion, are aimed at further tapping into rural utility markets with high growth potential.

International Business (IB): Global markets remained a key lever of growth and diversification: Secured the number three position in France and Italy in its segment, reinforcing VSTs standing in key European markets. The company expanded its footprint to new geographies, including Cyprus, Russia, Czech Republic, Angola, and Mali. Product development for entry into the US market is underway, with a launch targeted for 2027.

Marketing and Branding: The VTTL website was completely revamped and relaunched, enhancing the companys digital presence and customer engagement.

Supply Chain Management (SCM): Successfully launched the Supplier Relationship Management (SRM) portal, strengthening collaboration and transparency with vendor partners.

Digital Transformation: Rolled out DMS 2.0, further digitising dealer management processes for improved operational efficiency.

Operational Excellence: Institutionalised the Theory of Constraints (ToC) methodology to drive continuous improvement and optimise business processes.

Warehouse Management: Initiated testing of the new Warehouse Management System (WMS), with full implementation scheduled for the first half of FY 2025-26.

As per the SEBI (LODR) Regulations 2015, the Company is required to detail any changes of 25% or more in key financial ratios compared to the previous financial year, along with thorough explanations. Accordingly, the key financial ratios are presented below: The current ratio improved from 4.60 in FY 2023-24 to 4.77 in FY 2024-25, indicating a stronger liquidity position with sufficient current assets to cover short-term obligations.

*The variance is due to decrease in other income by 22.27 Crores.

The Company is charting a dynamic course for the upcoming years, with a clear focus on innovation, global expansion, and operational excellence. The companys strategic direction is underpinned by its ambition to evolve from a power tiller manufacturer to a comprehensive provider of small farm machinery, while strengthening its leadership in the compact tractor segment and expanding its footprint in both domestic and international markets.

1. Evolving Power Tillers to Small Farm Machines :

The Company aims to transform its core power tiller business into a versatile small farm machinery segment, catering to a broader range of agricultural needs. It will further strengthen this journey through new innovative products and new business models.

2. Leadership in the Compact Tractor Segment:

The Company is strengthening its leadership in the compact tractor segment through innovative, customer-focussed models aligned with evolving farmer needs. The success of models like 171, 929, 932, and 939 reflects this strategy and supports volume growth. Building on this, the Company is developing a global tractor platform regulatory-compliant and adaptable across regions with standardised core technology to meet emission and safety norms and drive competitiveness

3. Maximising Capacity Utilisation for High-Horsepower (HHP) Tractors: VST is prioritising optimal utilisation of its HHP tractor manufacturing capacity to address rising demand, particularly in the domestic market, and to support its growth ambitions in the compact and

HHP segments.

4. Promoting Precision Implements: The Company is advancing the adoption of precision farming implements, aiming to enhance farm productivity and efficiency for its customers. This includes a focus on expanding its portfolio of technologically advanced and user-friendly implements.

5. Global Expansion: The company is actively expanding its presence in key international markets, having recently entered geographies such as Cyprus, Russia, Czech Republic, Angola, and Mali, with product development underway for the US market and a launch targeted for 2027.

6. Participating in Technology Evolution: VST is actively engaging with the latest technological advancements in agricultural mechanisation, including the development of electric power tillers and weeders which will be launched in FY 2025-26, and the integration of digital solutions across its operations and product offerings

7. Exploring Rural Distribution Opportunities: The company continues to strengthen and expand its distribution network, with a particular emphasis on rural markets, to ensure that its products are accessible to farmers across all regions.

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Looking ahead, VST is reworking its long-term vision document in FY 2025-26, which will serve as the foundation for strategic projects and priorities to be cascaded across cross-functional teams. A dedicated project management structure and robust governance mechanisms have been established to monitor, track, and review progress, ensuring timely interventions where necessary. The Company expects to maintain operational EBITDA margins in the range of 11-13%, supported by continued growth in the small farm machinery segment, product and geographic expansion, and a strong pipeline of new product launches both in the SFM and Tractor segment.

Recognising the fundamental importance of proactive risk management for good corporate governance, the Company views it as essential for capitalising on strategic opportunities. Accordingly, a thorough risk management system has been established to identify and manage potential risks linked to its business operations. This framework shapes decision-making by providing a structured method for assessing risks and their possible impact on the Companys objectives. By integrating risk management into how decisions are made, the Company aims for more informed choices that consider both potential downsides and possible upsides. This approach assists the Company in navigating uncertainties and achieving its aims with greater efficiency.

During FY 2024-25, VST Tillers Tractors Ltd. undertook several initiatives to strengthen its human capital and foster a culture of continuous development. A key highlight was the completion of the first batch of the Leadership Development programme at the Indian Institute of Management Bangalore (IIMB). Building on this, the company has scheduled comprehensive competency assessments for key roles in the first quarter of FY 2025-26, ensuring that leadership potential is systematically identified and nurtured The company also made significant progress in building a robust talent pipeline through its "Campus to Leadership" initiative. Notably, 14% of positions at the M5 level are now held by Graduate Engineer Trainees (GETs), reflecting a strong focus on internal talent progression. In FY 2024-25, VST recruited 32 young professionals from campuses, bringing the year-to-date total of GETs to 47. To enhance sales effectiveness, VST implemented a structured classroom training programme for its sales force, covering core sales skills such as speed, enquiry conversion, and field issue resolution. The curriculum also included modules on market strategy, buyer psychology, and dealer management, equipping the team to navigate a dynamic marketplace and drive business growth. Further, the company continued its commitment to skill development and workforce renewal through the National Apprenticeship Promotion Scheme (NAPS), onboarding 110 apprentices during the year. These initiatives collectively underscore VSTs dedication to nurturing talent, fostering leadership, and building a future-ready workforce.

In accordance with the provisions of Section 135 of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014, VST Tillers Tractors Ltd. undertook a range of CSR initiatives during the financial year 2024-25, reaffirming its commitment to social responsibility and sustainable development.

During the year, the Company allocated and spent a total of 2,21,84,543 towards various CSR projects and activities, with a focussing on Education & Skill Development, Health & Well-being, Disability Inclusion, Environment & Conservation etc.

The Companys CSR efforts this year continued to prioritise impactful projects that address critical needs in the communities it serves. Initiatives ranged from supporting educational programmes and healthcare interventions to empowering differently-abled individuals, conserving wildlife, and promoting skill development and entrepreneurship.

The Company has established thorough internal financial controls, taking into account the nature of its operations and the complexity of its financial reporting systems. At the Board level, a clearly defined risk management strategy exists, based on pre-identified risk categories, occurrences, or variables that necessitate regular assessment and probability-based actions. Both statutory and internal auditors conduct frequent reviews to test the effectiveness of these controls. Regular physical checks of inventory, fixed assets, and cash on hand are carried out, with the results compared to the accounting records. Any discrepancies identified are promptly investigated by the relevant functional heads. The Audit Committee oversees the effectiveness and adequacy of the Companys internal control environment and monitors the implementation of audit recommendations.

This Annual Report may contain statements that are considered ‘forward-looking. These statements are subject to various risks, uncertainties, and other factors that could cause actual results to differ materially from those implied by such forward-looking statements. The Companys operations could be affected by global and domestic demand and supply conditions impacting selling prices of finished goods, availability and prices of inputs, changes in government regulations and tax laws, economic developments in India and other countries where the Company operates, litigation, industrial relations, and other incidental factors.