VST Tillers Tractors Ltd. (Rs.

118/-)
March 30, 2007

AN AGRICULTURE/OEM COMPANY WITH POTENTIAL OF REAL ESTATE.

VST Tillers Tractors Ltd. (Rs. 118/-): When markets are severely down, one of the safest strategy for
investment is to go for bottom fishing which means, to buy those companies which are expected to report
significantly improved performance for next 1-3 years but still, shareprice has taken severe beating due to
bad sentiment. VST Tiller is one such scrip which has crashed by nearly 30% from its recent high of Rs.
174/-.

Incorporated in late 1960s, VSTTL was promoted as a Joint Venture by V.T. Velu with Mitsubishi Heavy
Industries for manufacturing Power Tillers, Tractors and Diesel Engines. Indian Promoters hold 51.80
Equity whereas Mitsubishi holds 3.80% Equity in the Company.

VST is leading manufacturer of Tillers in India. It makes Yanji Shakti Rice Transplanter, VST Shakti
Power Tiller. For Tractor, it commands niche market share in Maharashtra and Gujarat in the smallest
H.P. range. Company has installed capacity of total 13,000 units. Around 78% sales is contributed by
Tillers and 22% by Tractor Division. Company has Precision Components Division at Mysore. However,
Division is not doing well due to lack of orders as this is not core business of the company.

Financial Performance:

Year Ended 9 Month Ended

31.03.06 31.12.06
(crs.) (crs.)

Gross Sales 130.51 116.15

Interest 1.37 0.32
Depreciation 2.71 2.04
Net Profit 7.42 8.55
Equity 5.76 5.76
Reserve 40.93 -
EPS (Rs.) 12.88 -

For 05-06, Company has maintained upward path in sales, profits and margins. Sales increased by 17%
from 111 cr. in 04-05 to an all time high of 130 crs. Operating profit increased by 16% to 15.63 crs. due
to higher realization. NP soared by 26% from 5.86 crs to 7.41 crs. Consequently, EPS rose from Rs.
10.17 to Rs. 13.10. Company is presently debt-free.

Sale of Tillers increased to 8489 units as against 7625 units in previous year. Tractor sales increased to
1249 units as against 933 units in previous year. Company commands sizeable market share in
Karnataka, Orissa, A.P. and North-East. To counter competition from other importers, company has tied-
up with a Chinese brand and importing/selling the same in Indian markets which has received a very
good response. It paid 30% dividend for 05-06.

Future Outlook:

Year Ended
31st March
2007E 2008E

Gross Sales 160.00 225.00

Net Profit 12.35 16.40
Equity 5.76 5.76
EPS (Rs.) 21.45 28.50
P.E. Ratio 5.50 4.14

Company has been doing extremely well in current year. In 9MFY07, it sales have gone upto Rs. 116
cr. and NP has zoomed to 8.55 crs.

Growth of Tiller and Tractor Industries is directly linked to the GDP growth which is expected to be 8% in
current year. Easier credit availability to farmers and awareness of the benefits from mechanisation
provides opportunities for higher sales. Govt's policy on agriculture and introduction of Bharat Nirman
Programme for growing massive rural infrastructure will directly benefit VSTTL. As against a growth of
2.4%, Govt. is targetting 4% growth for agriculture. In view of good demand, company is going for
expansion which will increase its Tiller capacity by approx. 20% and Tractor capacity will increase
by 100%. Impact of the same will be felt in 07-08.

Valuation:

VSTTL is in a position to report EPS of 21.45 in current year and 28.50 in 07-08. Stock is trading at just
5.50 x FY07E EPS and 4.14 x FY08E EPS which is lowest in the Industry. P.E. Ratio of
Agriculture/OEM Companies range from 15-30 times. Considering Mitsubishi collaboration and clean
promoters, VST deserves valuations at par with the best in the Industry. Even if VST has modest P.E.
Ratio of 12, it shareprice should be Rs. 256/- based upon FY07E EPS and Rs. 342/- based upon
FY08E EPS.

New Trigger:

Mitsubishi, Japan is setting up a Plant in India to manufacture Engines. VSTTL will be Equity Partner in
the same. Mitsubishi is likely to contribute Rs. 30 cr. to the Equity of this joint venture and VSTTL will
contribute Rs. 15 crs. Once this joint venture takes off, VSTTL will be re-rated strongly.

Real Estate Potential:

VSTTL Plant is situated on 20 acre land at Whitefield, Bangalore. Presently, hardly 8-9 acre land is used
and nearly 11-12 acre land is surplus/idle. Whitefield has become a major commercial area in Bangaore,
extremely crowded and hardly any manufacturing facilities left in this area. Due to heavy congestion
(which prevents movement of this goods during peak hours), VSTTL faces many difficulties at its present
site. Sooner or later, (within 1-2 years), management will have to take a decision to relocate its Plant
around 30 kms. away from existing site. Present market value of this land is more than Rs. 200 crs.
which works out to Rs. 350/- per share. This value will increase significantly in next 1-2 years
(when management decides to relocate).

Recommendation:

Consider the following:

a) Debt-free Company.
b) Clean Promoters.
c) Collaboration of Mitsubishi.
d) New Joint Venture in the offing.
e) Expansion under way.
f) Strong Demand.
g) Lowest P.E. Ratio.

Based upon above fundamentals, VSTTL shareprice should be Rs. 225/- in less than 9 months and
Rs. 275/- in 15 months. As and when management decides to unlock value of its Bangalore land,
shareprice can be in the range of Rs. 425-475/-. Buying strongly recommended.

Report written by:

Hemant K. Gupta
Centre for Development of Financial Treasure
212, Ravi Industrial Estate
Off Mahakali Road
Andheri (East)
Mumbai-93.
Tel. No: 022-26873540.
Email ID: cdoft@mtnl.net.in

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