VST Tillers Tractors Ltd Management Discussions.

Global Economy

The global economy contracted by 3.3% in FY20201 due to the covid 19 pandemic resulting in lockdowns and subsequent breakdown of the global supply chain. The pandemic caused worldwide infections to cross 95 million in one year since the first case was reported, taking the global fatality rate to average at 2.1 %. The output loss was not uniform and depended on pre-existing vulnerabilities in individual economies and strength of their macroeconomic fundamentals. While agriculture remained largely unaffected, industrial sectors and service sectors such tourism, airlines and commodity exports were hit the most. Companies across the globe resorted to cost containment strategy amidst the twin shocks from slump in demand and supply hurdles. The social and economic loss, especially for the vulnerable sections such as youth, women and children have been severe with losses in income, job and learning.

While industries were impacted by the disruption in the global supply chain and production networks, impact on the contact intensive sectors such as travel and tourism, airlines continue. The labor market shock hit the youth and lower skilled workers the hardest, while household suffered severe financial stress due to loss of jobs. The monetary easing policy was adopted by most of the central banks, which enabled the governments to provide fiscal stimulus to cushion the economy. As per estimates, the fiscal stimulus exceeded more than one fifth of GDP for 9 countries led by Japan, while US was the largest contributor in absolute terms.2

Indian Economy

The Indian economy witnessed a contraction in GDP by 7.3% in FY21.3 The restrictions on mobility and social distancing impacted lives and livelihood of the households due to drastic reduction in economic activities across the globe. While industrial activities and services sector took a huge blow, agricultural activities remained comparatively unaffected.

The GDP declined sharply by 23.9% in the first quarter which witnessed the peak in lockdown and a sudden fall in almost all the high frequency indicators of the Indian economy. The unlocking in phases since Q2FY21 witnessed gradual rise in economic output with indicators racing towards the inflection point. The economy registered a 0.4% GDP growth in Q3FY21 riding on the back of pent-up demand driven by festive season. The FY21 also witnessed good monsoons for the third consecutive year leading to a good harvest although prices played spoilt sport.

The Indian economy is projected to grow by 10.5% (RBI) in FY22 based on a broad consensus on increasing normalization in the economy post Q3, availability of vaccines and a low base effect. However, the optimism is susceptible to the negative fallouts from a second, third wave of infections, frequent lockdowns and a weak medical infrastructure to contain the virus. Inflationary trends will depend on the south west monsoon and energy prices especially petrol and diesel due to its spillover effects on almost all the sectors of the economy.

The Indian Agriculture Equipment Industry

Agriculture is a primary source of livelihood in India and plays a crucial role in the growth and development of the nation. Farm productivity relies heavily on the availability and the prudent use of farm power by the farmers. Agricultural implements and equipment enable farmers to use farm power judiciously, increasing land and labour productivity in farm operations. Thus, mechanized farming has become extremely popular in recent years.

The agricultural equipment market in India has grown at a fast pace over the past few years. Farmers have also shown interest in adopting mechanization processes for various farming operations such as tillage, sowing, irrigation, plant protection, threshing, etc. A variety of equipment ranging from tractors, power tillers, trailers, harvesters to planting equipment, irrigation and crop processing equipment, spraying equipment and hay and forage equipment are gradually growing its market share.

The agriculture equipment industry in India continues to be driven by social, economic as well as several macroeconomic factors such as growing population, burgeoning food demand, rapid urbanization, easy availability of agricultural credit and government initiatives aimed at improving farm production. Although farm mechanization in India has become quite popular in the states of Uttar Pradesh, Haryana and Punjab, its usage is comparatively lower in comparison to developed economies of United States, Brazil and China.

On the other hand, the tractor industry in India registered a strong growth trajectory in FY 2021 despite the downturn in other sectors of the country. The tractor market has picked up since May, after facing a brief headwind in the month of April. The industry reported a huge sales growth of 41.8 percent by selling 60,717 units in December 20204. This spur in growth can be attributed to various positive factors including a better monsoon, good rabi and kharif crop harvest, easy availability of finance, higher Minimum Support Prices (MSPs), increased government spending on agriculture and rural development and better price realizations.

Power Tiller industry saw marginal growth of 5 %Similarly, after facing an initial downturn, the market for power tillers picked up gradually in the second half of FY 2021. The market largely benefitted from the various agricultural schemes deployed by the government. As the lockdowns continued to be lifted, the rural agricultural sector bounced back faster than its urban counterpart.

Opportunities and Threats


• Scarcity of labour: Scarcity of farm labour has compelled many farmers to resort to mechanized farming in India. This further gives a boost to the equipment industry in India.

• Increasing availability of farm power: Availability of farm power in India is rising at a rapid rate and is expected to increase further in the coming years, creating tremendous opportunities of growth in the agriculture machinery industry.

• Unprecedented sale of tractors and power tillers: The sale of tractors and power tillers have gone up significantly and it is expected to be quite promising for the future of the industry.

• Government initiatives: The Government of India is introducing various initiatives to drive the growth of the farm equipment market in India.

• Innovative Technology: With technology taking centerstage in the agricultural sector, increased application of innovative technology for the development of self-driving autonomous tractors and other products is expected to be profitable for farmers.

• Rise in purchasing power: Economic growth and improved productivity has increased the income of farmers. This offers greater purchasing power to farmers to adopt advanced agricultural mechanization procedures.

• Growth of contract farming: Contract farming ensures better quality production and also provides technical and financial assistance to farmers. It continues to offer a ray of hope for farmers and is expected to spur the equipment market in India.

• Availability of better financing options: Credit facilities for farmers are improving constantly and it has greatly contributed to the growth of the industry in the past few years.


• Rural infrastructure: The lack of proper infrastructure in rural areas act as an impediment for the development of the agriculture industry in India.

• Availability of retail finance is still scarce for small farm mechanization such as power tillers.


The agriculture machinery market in India is forecast to cross INR 901.41 billion by 2024, growing at a Compound Annual Growth Rate (CAGR) of approximately 10.70 percent from 2019 to 20245. The growth of a sharing economy and the prominence of tech-driven startups is expected to transform the agricultural equipment industry in India.

Company Overview

The Company is the largest producer of power tillers in India and "VST " is the most renowned power tiller brand in India. "VST Mitsubishi", which was earlier a pioneer in the compact four-wheel drive tractors space has now been incorporated under VST, along with a range of compact agricultural tractors. The company has state-of-the-art plants in India, at Malur, Mysore & Hosur and produces superior quality products that comply with global standards. The Company is recognized as the most preferred brand for compact tractors and offers its premium quality products in more than 20 countries around the world

Business Segment Overview

Small Farm Machinery

The company continued to strengthen its brand value by successfully transitioning to the Small Farm Mechanization business from being present only in power tillers. To facilitate the transition, the company introduced range of products such as power weeders, brush cutters, power reapers with multi-application suitability and 16 HP power tiller in higher HP segment. The company established a strategic tie-up with Pubert, France for introducing the weeder range of product in small farm mechanization market.

The company established a first ever strategic tie up with a private bank, Jana Small Finance Bank for exclusive retail finance of small and marginal farmers. To improve market reach, the dealer network was expanded across key markets. Above the Line (ATL) and Below the line (BTL) marketing activities were carried out across key markets in Orrisa, Assam & Maharashtra to further strengthen its reach especially in Tier 2 & 3 cities. Digital marketing was integrated along with promotional activities such as product displays, demos and van campaign for improving brand awareness and recall along with increasing the customer reach in an efficient and targeted manner.

To improve customer satisfaction during the ongoing pandemic situation the company initiated home deliveries to overcome the mobility challenges. Strategic stocking at key locations was undertaken to reduce the lead time for delivery of products. The company also established digital engagement with dealers for quick response. Brand recall for VST was phenomenally higher in the tiller segment with brand visibility improving further through digital outreach.


During the year under review, the company focused on strengthening its product portfolio by launching new products such as 27 HP High torque, Viraaj Face lift, 30 HP and NGT. The company also transitioned to digital marketing from the traditional methods and our digital presence improved significantly. The company expanded its network by addition of 100+ dealers in FY 2020-21 which enabled it to improve its coverage. To increase customer satisfaction, the company, through its dealers, offered home services during the pandemic and over 22000 farmers were served through CHSC centers. Consequently, VST grew at 24% YoY in sales in FY21. To increase the customer satisfaction, the company focused on compulsory product-based training for new dealers and ensured compulsory stocking of parts for effective servicing of customer complaints.

International Business

The company shifted towards online channel for network expansion and appointed new distributors in the overseas market. The company strengthen its distributor network across various countries including Germany, Hungary, Nepal, Bangladesh, Sri Lanka, Guinea, Tunisia, Liberia and Congo. The company also focused on building its secondary distribution network under the new distributors. During the year under review, the company added 42 new dealers in Europe and 10 new dealers in Asia & Africa.

The company plans to build the VST brand and bring awareness in international markets in FY22 by undertaking online and offline marketing activities. Social media campaigns were also undertaken for FILEDTRAC brand in Europe to increase reach in existing and new markets.

Standing tall against Covid 19 pandemic

The government mandated restrictions and voluntary social distancing measures adopted by individuals impacted the production and distribution operations of farm machinery sector. The farm machinery market improved post lockdown driven by bumper rabi and kharif crop production, good rainfall and timely procurement of crops by the Government, which ensured money circulation in the rural economy. Tractor industry, being declared as essential activity, resumed production earlier than other industries and provided relief to various players in the value chain. The company took upon the challenge head on to rethink business strategy without compromising on customer satisfaction and ensuring the safety of employees and stakeholders. The company integrated digital strategy to increase visibility, brand awareness and coordinate with the dealer network. We sanitised our facilities, offices, equipment and practically all human interfacing surfaces multiple times a day. We altered our processes in our offices, facilities and cafeterias to adhere to distancing norms.

Financial Review

H( in crore)

Particular 2020-21 2019-20 YoY Change (in %)
Revenue from Operation 76,424 54,368 40.56
PBT 11922 2310 416
PAT 9077 1800 404
Net Worth 66,757 57,691 16

Key Ratios

In accordance with the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations 2018, the Company is required to provide details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor. The key financial ratios are given below:

Ratios 2020-21 2019-20 Explanation
Debtors Turnover Ratio (No. of days) 9.34 5.65 Due to Increase cash sales
Inventory Turnover Ratio (No. of days) 7.15 5.32 Due to Increase in sales and lower stock
Interest Coverage Ratio (In times) 89.35 27.87 Due to Increase in EBDITA
Current ratio (In times) 3.16 4.08 Due to Decrease in Current Assets (GST)
Gross Profit margin (In %) 33% 36% Due to Increase in COGS and Net Sales
Net Profit margin (In %) 12% 3.31% Due to Increase in sales and earning
Debt Equity ratio (In %) Nil Nil No Debt
Return on Net Worth (in %) 18.09% 4.26% Increase in operational profit and sales

Risk and Concern

Purchasing power

The small and marginal farmers, by virtue of their farm holding size and financial strength, are generally skeptical of farm machineries. A high initial capital investment in equipment’s coupled with crop seasonality and perceived complexity in advanced technologies acts as a barrier to entry for the small and marginal farmers.


The Company has joined hands with NBFCs and small size banks such as Small Finance Banks to ensure easy availability of credit to its customers. Further, the company has also diversified its product offering to various value added products independent of government subsidies.

Specific product offering

Farm ownership and structure in India is quite different to that of some of the developed economies. The land is highly fragmented and land degradation is rapidly increasing in India. Farming in India varies spatially, crops wise and by virtue of agricultural infrastructure in a region. This requires design and development of products which can be easily adapted to specific requirements and conditions.


The company constantly monitors field inputs from the customer and aligns the product development accordingly. The company is offering new products and agricultural attachements based on the crops and geographical areas. The company also organizes training sessions by leveraging its distributor network to impart product information, demos and various other applications.


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


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. The company has launched several products in tractor segment and has lined up more launches that will happen in the future.


The domestic economic environment continues to be marked with uncertainty amid increasing tendency towards lockdown in the wake of rising infections. However, markets in developed countries are expected to maintain their momentum in tackling the infection and reviving the economy. The predictions for the monsoon welcoming, structural reforms in the agriculture sector is likely to boost the demand for farm machineries. Maneuvering in an uncertain environment, the company is revisiting the branding strategy to make VST a single and modern brand to enhance the brand recall in small farm mechanization market. The new brand identity will be a strong indication of the transformation of the company to becoming more agile, innovative, mutual growth oriented and partnership driven organization. The brand VST aims to improve the coverage in FY22 by expanding the network and become a leader in compact tractor segment. The company has the potential to revolutionize small farm mechanization by leveraging its strong position in 3-50 HP mechanization solutions. Leveraging the advantage of new state-of-the-art factories, producing a full range of agri-machinery, the company is poised to expand its reach in international market. The tie up with global partners such as Zetor, Monarch and Pubert will expand its offerings and capacity utilisation. Expanded capacity at Hosur will be utilised to grow the Higher HP Tractor business

Human Resources

The Company considers its people strategy, capabilities and well-being of its employees as a key enabler to achieve organizational goals. It 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 2021, the employee strength of the company was 1,107 employees.

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 Company’s 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 Company’s 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.