Buy This Multibagger Small Cap Auto Sector Stock For Target Price Of Rs 2,959: LKP Research

LKP Research's recently report on VST Tillers Tractors Ltd. (VSTT) has given a buy call for a target price of Rs 2,959 apiece. The Brokerage claims a potential upside of 19%. VSTT is an Auto sector small-cap company having a market capitalization of Rs 2,159.06 Crore.

Stock Outlook

The current market price (CMP) of the stock is Rs 2,492.40 apiece on NSE. The 52-week low of the stock is Rs 2,268.30 apiece recorded in May 2022 and the 52 week high is Rs 3,453.55 apiece recorded in October 2021, respectively.

Returns on Investment

In the past 1 week, the shares surged by 0.21% and in the past 1 month by 5.49%. Whereas, in the past 3 months, it gave a negative return of 2.78%. Over the past 1 year, it gave a negative return of 2.78%. In the past 3 years, the stock gave 116.29% multibagger return and in the past 5 years, it gave 20.33% positive return, respectively.

Momentum in the bread and butter Power Tiller segment continues

The brokerage said, "We expect the farm machinery industry to remain healthy over the next couple of years, aided by healthy rural cash flows. Though covid has hit the rural economy over the last 2 years, we expect it to recover strongly, led by the government's initiatives for the agriculture and farming sector, strong Kharif crop in the previous year, higher reservoir levels, on-going normal rains this year and pent up demand. Furthermore, non-availability of labour, higher MSPs, MNREGA incentives, high subsidies from the government, ban on Tiller imports are all aiding VSTT's Power Tiller business."

Tractors to post robust sales on multiple factors

Despite low tractor sales in the past few quarters, with better Kharif crop last year and good Rabi sowing expected, higher levels of water reservoir levels, good spread and volumes of monsoon this year and an upbeat festive season ahead, we believe there will be a strong pick up in tractor sales in the ensuing months. Additionally, there has been a gradual shift towards higher HP tractors.

Business Outlook

VST Tillers Tractors Ltd (VSTT) is well-positioned to maintain its dominant market share in the Power Tiller market. Market share gains driven by new product launches across brands would increase the company's addressable market. In addition, the company is strengthening its distribution network across the country. The company has technological tie-ups with Zetor (Czech Republic) and Pubert (France) for product development. VSTT has invested in US-based Zimeno Inc, a manufacturer of driver optional born electric tractors under the Monarch brand. Tiller volumes have been showing a robust growth over last few years on the back of strong monsoon, demand for small farm mechanisation, shortage of labour, subsidy for small farmers and increase in small farm lands under cultivation. VSTT's presence in compact tractors also offers it a strong position to develop further with partnerships like Zetor for manufacturing higher HP tractors. This would expand its presence in the North. Innovations in the other products like the power weeders and brush cutters should augur well for the company. Zero debt, high return ratios, improving capacity utilizations and improving margins lend comfort to investors. VSTT has 22 acres land parcel at Whitefield in Bengaluru which is a monetizable asset going forward.

Buy for a target price of Rs 2,959

The stock is trading in line with its historical average, at P/E multiple of 14x on its FY24E estimates. "We believe VSTT looks attractive at current levels and recommend BUY with a target price of ₹2,959," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of LKP Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.