Antony Cherukara, CEO, VST Tillers Tractors Ltd., talks about the growth of the Q3FY22 numbers, raw material inflation, product launch pipeline, price hikes, 'Mission 2025', price hike plans, international markets and offer of up to 100% finance for brush cutters among others during a candid chat with Neha Anand, Zee Business.

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Q: VST Tillers revenue has been stable with about a 2.5% growth in Q3FY22. What led to this stability, was it the price or volume play?

A: Both has happened. Price was increased to tackle inflation and volume has increased in power tillers but there is some pressure on tractors and the whole industry is feeling it today. Hopefully, going forward that should be back.

Q: You have to increase the prices due to inflation. Have you passed on the price rise in input cost? Also, update us on the kind of sales/volumes that has been there?

A: As I have said there was a growth in volumes in the power tillers, while there was a slight drop in volumes of tractors in the third quarter. But there are indications, like water availability and pricing that the farmers are getting, that gives a sense that the fourth quarter should be much better than the third quarter. As far as pricing is concerned, we have not been able to pass on the inflation completely because that is a difficult thing to do. But I would like to emphasize the fact that we have managed the cost and if you will look at our operational EBITDA, then from the nine-month perspective (from April to December) the operational EBITDA is better.

Q: What's the expected revenue growth rate for the next 3-4 years for the company and what would be the key growth drivers ahead?

A: We have created 'Mission 2025' where we have estimated a minimum of 30-35% CAGR growth. So, in the first year, which was the last financial year, we have achieved 40% growth. In fact, two years have passed in this journey and this year we are hoping to end with about 30% CAGR. So, we are on track with the mission statement that we have built for ourselves.

Q: What is your margin outlook ahead? 

A: Inflation continues to be an issue. Amid the ongoing political turmoil, the rise in oil prices among others continue to be an issue that will create margin pressure on all of us in the industry, including us. But I have said a point before that we have been able to manage this pressure because of the cost-efficiency. If you will have a look at our data then the operational EBITDA - not the overall EBITDA - we have been able to manage better than the previous year also. I think that the performance will continue because there are multiple projects that we have taken up to increase the efficiency and that is yielding results as of now.

Q: So, we should consider that there will be no price hikes in this calendar year and can you please tell us about those projects that will lead to project efficiency? Or going forward, if inflation continues to hit the economy then price hikes will be made?

A: It depends on the quantum of price rise required. If the commodity inflation continues to shot-up, for instance, the crude has reached $95 and if it continues to rise then all of us will be in trouble and will have to look at the price rise. So, it is a very volatile situation and it is difficult to confirm but if things improve, I don't think that there is any reason why the industry will have to look at the price rise but it is a very volatile situation to confirm anything at this point of time is difficult.  

Q: What is your product launch pipeline for FY23 especially in the electric tractor segment?

A: We have already invested in an Electric Tractors company in the US and are also working with them and are developing powertrain here and sending it to them, hopefully, we should be able to launch that product in the US market in the next financial year. It is known as Monarch Tractors. We are responsible for its powertrains, so, we will be exporting the power train from India to the US. That is one aspect, however, electric tractor for India is something that we will be working on in the future.

Q: You have your presence even in the international market. So, let us know about the kind of response you are getting there? Also, in September 2021, VST Tillers has launched a range of tractors, power tillers in the South African market. So, update us on it as well in terms of growth and response and what is the prospect?

A: In exports, we got into two markets. We were already present in Europe, especially in Western Europe and we have been able to consolidate further on it in France, Belgium, Germany, the Netherlands, Spain and Portugal. We have got a good presence now and the business growth has been more than 100% in exports in the compact tractor sector where we operate. The second aspect is to get into the African market for which we have tied up with ETG (Export Trading Group) for South Africa and I am very happy to say that the response has been very good, the business is growing and with the launch of more products, especially in the higher horsepower segment that we will launch next year through VST Zetor. These products also will be taken into Africa. So, we look forward to good growth in Africa.

Q: Can you please provide a quantum of what impact it will have on your revenues, going forward?

A: It is very difficult to give you volume as at this point, we do not have a forward-looking figure on that. However, I can say that Africa is going to be a very good focus market for us, especially for the high horsepower tractors.

Q: The COVID pandemic is almost behind us. So, are you getting strong indications of demand and demand growth in the Indian market? Going forward, how much scope do you see in the Indian market as you are working on something in the tractor segment?

A: We have two segments and we are one of the companies in India that are also working with small farmers along with big farmers with our tractors. So, if we will talk first about the small farmers' segment then we are talking about Power Tillers, Power Weeder and the segment, where affordability and innovation is the key to drive the growth. And, a lot of growth has been seen in this segment this year also even though slight slowness is visible in the tractor industry but the power tillers industry is growing this year and the business is doing well. And I think that it will continue to grow because 70% of the farmers in our country are small and marginal farmers, which have less than 2-acre of landholding and a tractor, which is costing more than Rs 6 lakh or Rs 7 lakh becomes an affordability issue for these farmers and we see if we can create accessibility and retail finance availability for the smaller farmers. We are working on it. So, for this reason, we feel that the small and marginal farmer segment needs mechanisation and it will continue to grow. In the tractor segment, there is an influence of inflation. There is also in the future going to be an influence of technology wherein stage V emission norms will come in, which will make the higher horsepower tractors a little more expensive than what it is today. Due to this, there can be a shift in the horsepower segment as well that will happen in India. Overall, we feel that the segment we are in the compact and small HP segment is slated for growth and especially, the power tellers segment where we are serving the small and marginal farmers is going to see continuous growth for a considerable time.

Q: A few days back, the company announced a unique offer of up to 100% finance for its vast range of brush cutters. What is the rationale here?

A: The product especially takes care of the issue of labour availability. Brush cutters are used mostly by the farmers for themselves for dividing and maintaining the land. The product cost between Rs 15,000-25,000 and a lot of time, the EMI facility is not available and an immediate amount of money is not available, hence, the farmer has to postpone his purchase decision. So, we worked with some financiers and came out with the scheme wherein the customer has to do a down payment of only Re 1 and with the facility of Kisan Credit Card, he gets an opportunity to create an EMI for himself and that can be paid over a period of time. This has been able to create easier purchases for the farmer thereby it works. 

 

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