Date: 11th July 2000
Punjab Tractors - On fallow ground
Current market price - Rs756
BSE Sensex - 4898                

The Land of the Five Rivers. The Grain Basket of the Country. These are the sobriquets, which have been heaped upon the Land of the Green Revolution - Punjab. Not exactly known for its industrial development, the state nevertheless has PTL, which over the years has reaped a rich harvest by selling tractors. But the ground realities for this true 'son of the soil' have changed vastly during the last three months. Read on to know why…

What is the Business?
PTL is the third largest player in the tractor segment today, after M&M and Escorts, with sales of 50,705 units in FY2000. As the soil conditions are alluvial in large parts of northern India, not surprisingly, PTL's forte has always been the low powered tractors in the 25-40 HP range with no presence in the 40-50 HP segment. Its stronghold has been the markets of Punjab, Haryana, Gujarat and MP. However, realizing that the market demand has shifted towards the medium and high-powered category, PTL introduced 'Swaraj 744' in the 40-50 HP range. But the move could be a bit late as M&M and Escorts are entrenched in this segment with a combined market share of 83% in FY2000. PTL is also trying its hand at exports and is presently getting ready to export the first batch of around 250-300 tractors to the USA. Clearly, the company has felt a need to expand its product range and not depend entirely on the already saturated markets of Punjab and Haryana.

Who is the Management?
The largest shareholding (65%) of PTL is with the Punjab State Industrial Development Corporation, which needless to say is a state government body. However, it has thus far not played an active role in the day to day management of the company, which has been left to a team of professionals led by Mr. Yash Mahajan who has earned his spurs working in the company. As far as shareholder returns goes, the track record of the company has been impeccable on many a counts. In the past three years, generous doles of dividend payouts have been thrice garnished with an announcement of a bonus issue. It is difficult to think of any other Indian company, which has nearly 92% of its paid-up equity comprising of bonus shares!! However, the most recent one announced could well be a sleight of hand. The last time when it announced a bonus issue in FY97, the company followed it up two years later with a volume growth of 19.6%yoy while the rest of the industry inched up by a measly 4%yoy. This time around, however, the portents are anything but favorable. With a negative sales growth of 39%yoy in April, the prospects don't look good for the ensuing first quarter results.

Whither Cash flows?
The wealth gods had never had a chance to frown upon PTL. Despite rivals pooh-poohing its oft-stated claim of 100% cash sales, PTL's liquidity position was never a matter of doubt. However, the tide seems to have turned for the moment. The company, while announcing its latest annual results, admitted to the fact that given the market conditions, "the company has had to extend selective credit to support its sales operations, the first time after nearly 12 years". And as things stand at the moment, the situation does not look close to be redeemed.

Why should I Sell?
The rain gods have failed to deliver once again and several parts of western India are still reeling under drought like conditions. Alongwith the poor brethren of these states all the tractor manufacturers have been hard hit - PTL not been an exception. To state the obvious, PTL's fortunes are made or marred by the amount and spread of rainfall in the country. Yet an another major factor, which can affect tractor sales, is availability of credit as around 90% of tractors are financed by bank credit at concessional rates. And as for growth in FY01, sample this from the Chairman's statement in the latest annual report. "While current market conditions preclude easy optimism particularly over a quarter or two. With an improvement in agri prices, period after the rainy season is poised to stage a demand recovery, although the large inventory carry over by industry would take sometime to normalize". Need we say anything more.

Where can I go Wrong?
The Indian Meteorological Department has predicted a normal monsoon based on inputs from 16 or so parameters. If that seems like déjà vu, you are not too wide off the mark. The forecast was pretty much the same last year too and look what happened. This year the monsoons have come in a hurry and we hope that they do not leave in a huff.