ICICI Direct Recommends Buy This Small Cap Auto Sector Stock, Sees Gains Up To 17% In 12 Months

Brokerage Firm ICICI Direct in its recent report has given a "Buy" call to VST Tillers Tractors Ltd. (VST), a small-cap auto sector company. The brokerage sees a potential upside of 17% from its current level with the target price of Rs 2,705 per share. It has a market capitalization of Rs 1,976.72 crore.

VST Tillers Tractors (VST) is the leading farm mechanisation player domestically with a dominant market share in the power tiller segment (~58% as of FY22) and prominent market share in the compact tractor space (~7% in FY22). Its FY22 segment mix is as follows: power tiller ~54%, tractors ~34%, others ~12%. Whereas, its FY22 sales volume is as follows: power tiller: 31,776 units, tractor: 7,991 units.

Stock Outlook & Returns

The stock is currently trading at Rs 2,261.45 per share, 0.31% down as compared to its previous close of Rs 2,268.55 per share. Today it opened at Rs 2,255 per share. The stock recorded its 52-week high level on 16 November 2021 at Rs 3,367.50 and 52 week low on 12 October 2022 at Rs 1,666.25, respectively.

The stock has performed well in terms of returns over the past 3 years, however, in over a year, the shares declined. The stock in the past 1 week has jumped 9.46%, whereas, in the past 1 month, shares jumped 4.1%, respectively. In 3 months, it has given a negative return of 11.67% and in a year, it has given a negative return of 20.04%, respectively. However, in 3 years, it has given 77.96% positive returns and in the past 5 years 3.38% positive return on investments.

 

Q2FY23 Results

The company reported a healthy performance in Q2FY23. Net sales for the quarter came in at Rs 234 crore, flat YoY, QoQ amid power tiller sales volume of 8,819 units (up 2% YoY) and tractor sales volume of 1,688 units (down 27% YoY). EBITDA for the quarter came in at Rs 32 crore with corresponding EBITDA margins at 13.8%, down 240 bps YoY. However, it recovered meaningfully from the 7.2% levels reported in Q1FY23. PAT in Q2FY23 was at Rs 22.7 crore, down 29% YoY. On the b/s front, VST did see adverse working capital cycle leading to negative CFO in H1FY23.

 

Buy for a target price of Rs 2,605 per share

VST's share price has flattened out over five year. "With accelerated growth on the anvil amid a series of new product launches in tractor space and technology tie-ups, we upgrade the stock from HOLD to BUY at the current price point (stock corrected by 30%+ from highs). We find comfort in cash rich b/s, healthy return ratios & inexpensive valuations. We value the company at a revised target price of Rs 2,705 i.e. 20x P/E on FY24E EPS of Rs 135.2 (earlier target price Rs 2,820)," the brokerage has said.

 

Key triggers for future price performance

With healthy monsoon in its key states, healthy farm income and import restrictions in place, we expect power tiller sales volume to grow at a CAGR of 11.2% in FY22-24E to 39,312 units in FY24E. With new product launches in near term, sales volume in tractor segment is expected to grow at 8.7% CAGR in FY22-24E to 9,434 units in FY24E. Management commitment towards scaling the company to a Rs 3,000 crore global brand by 2025/26 in farm mechanisation and solutions.

 

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. 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.