The company conducted concall on its Q2 results, below are the points that I have noted down.
a) Results have not been upto the mark. This is due to bad monsoons and degrowth in the tractor market
b) 6420 Tillers sold during the quarter value – 82.8 Crores, average realization at 129000; 1752 tractors sold value – 45.66 Cr, average realization 260000.
c) Operating margins not upto the mark, reason being increase in other expenses, they form 13% of sales as compared to 10% in Q2FY15
d) Company has appointed Mr Subbiah as CEO, having 34 years of experience. Worked in companies like bosch, tyco electronics and pricol.
e) Orissa is the biggest tiller market in India. However it has been a disappointment. Reasons are change in policy- state pays subsidy of 75000 which is staggered over a period. State has also adopted a lottery system, earlier for receiving subsidy they followed a first cum first serve system. As demand has increased they now use the lottery system for subsidized tillers
f) Company expects to sell 28000 tillers in FY16. States that will drive this number are karnataka, AP & TN. Company has sold 13176 tillers in H1 FY16.
g) Company expects to sell 8500 tractors in FY16. The company has sold 4000 tractors in H1 FY16.
h) Company is bringing in outside resources to the company and professionalizing it, the promoter family will be involved in the company, however they want to bring outside talent to run the day to day operations. It has also appointed a new marketing head
i) Company is going to launch two new products in the tractor segment. 25 & 30 HP tractor. One of the tractors is going to be launched in Dec next year
j) The company is in a position to produce 12000 tractors and 35000 tillers without a hassle
k) Company is going to maintain a dividend payout ratio of 20%, though they have cash on the books to the tune of 140 Cr. They want to have money for the rainy day
l) 25-50 Crore capex required in the medium term, figure will depend on the development of the new tractor
m) For the rest of the year the following states are going to contribute to tiller sales Karnataka – 6000 units, Orissa – 5000 units, North East – 3000 units and Maharashtra and Gujarat – 3000 units. In the tractor segment Maharashtra and Gujarat are going to contribute 75-80% of the sales
n) Karnataka and TN give subsidy for small tractors
o) Company spoke about direct benefit transfer scheme – the company did mention that this is good in the long term however demand will go down in the short term. Farmer has to arrange the full money while purchasing the product and company will get the money immediately, current the company receives the subsidy over a 6 month period
p) Africa is a good market for tillers, however it is flooded by chinese tillers and it is very difficult to compete with them. However the company is looking at the tractor market in Africa
q) Current market share in tiller market is > 50%, company has grown this share from 45% this inspite there being 45 brands of imported tillers in the market. In the 20-30 HP segment the company has a market share of 30% up from 27%
r) Company intends to sell about 3000 rice transplanters in the next 2-3 years
s) The company has 200 dealers, 80% of them handle both power tillers and tractors. Dealer margins >10%
t) The CEO is going to lay out a 5 year 2020 vision for the company and present it the board in the coming days, points that he mentioned were
1) Strengthen product engineering – collaborating with partners for better technology, shortening lead time so that the product can reach the customers on time
2) Company to have a organizational structure to support this plan
3) Work on supply chain – company is looking to prioritize on suppliers
u) Company is looking to get 50-50% revenue from tractor and tillers in the next two years. After that tractors will contribute the majority of the sales.
If other members have gone through the concall and want to add on points that I may have missed please do so.
Regards,
Chetan Chhabria
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