RETAIL EQUITY RESEARCH TVS Motors Ltd Holdnewsletter.geojit.com/researchnotes_new/research_note...Standalone Financials Profit & Loss Account Y.E March (Rs cr) FY14A FY15A FY16A FY17E

28th July 2016

EBITDA misses estimates owing to lower revenues

Q4FY16 sales grew by 12% YoY to Rs2,881cr, which is below our estimates of Rs3,095cr. PAT grew 21% YoY, marginally below our expectation. Gross margin contracted ~50bps YoY, owing to increase in the average commodity price. EBITDA margin grew +25bps YoY to 6.96%, much lower than our estimate of 7.2% due to lower share of export mix and higher moped sales which impacted realisation.

Domestic revenue momentum continues. Revenue was largely boosted by domestic 2-wheeler & 3-wheeler sales volumes which grew 22%YoY and 45%YoY respectively. Average realisation per vehicle in domestic improved by 2.5%YoY, while in export de-grew by -3.8%YoY. De-growth in the export sales was due to impact of falling crude price on the key export market demand and currency devaluation. We expect TVSM to maintain a steady growth in overall realisation per vehicle on the back of new launches and better product mix.

Recent launches help to sustain volume growth TVSM launched 2 new bikes Apache RTR 200 and Victor in premium and executive segment respectively in January‟16. The executive segment registered a whopping 159%YoY volume growth in Q1FY17 and premium segment grew 4%YoY. We factor TVSM to clock double digit volume growth in FY17 driven by revival in rural demand (~40% of volume is contributed by rural) and ramp up of sales from the recent launches going pan-India. A new launch from the BMW JV is also expected by H2FY17. On the back of strong volume growth and despite lower overall realisation, we factor 14% CAGR in revenue over FY16-18E and 130bps expansion in EBITDA margin to 8%.

Valuations We marginally lower our FY17E revenue and PAT estimates by 2.8% and 4.8% respectively to factor in lower realisation due to weaker export market. Going forward we believe TVSM will increase its domestic market share through better volume growth on revival in rural demand and new launches. So we retain our valuation at 20x on FY18E EPS but reduce our target price to Rs302 factoring lower earnings and maintain our rating as HOLD

RETAIL EQUITY RESEARCH

TVS Motors Ltd Rating as per Mid Cap 12months investment period Automobiles

BSE CODE:532343 NSE CODE: TVSMOTOR CMP Rs288 TARGET Rs302 RETURN 5%

Bloomberg CODE: TVSL IN SENSEX: 28,024

Company Data

Market Cap (cr) Rs13,673

Enterprise Value (cr) Rs14,404

Outstanding Shares (cr) 48

Free Float 41.0%

Dividend Yield 0.61%

52 week high Rs341

52 week low Rs201

6m average volume (cr) 0.19

Beta 0.79

Face value Rs1

Shareholding % Q3FY16 Q4FY16 Q1FY17

Promoters 57.4 57.4 57.4

FII‟s 13.4 14.4 15.3

MFs/Insti 15.4 14.6 14.5

Public 13.8 13.6 12.8

Total 100.0 100.0 100.0

Price Performance 3mth 6mth 1 Year

Absolute Return -12.2% -1.3% 19.5%

Absolute Sensex 7.5% 14.5% 1.7%

Relative Return* -18.3% -13.8% 17.5%

*over or under performance to benchmark index

Y.E Mar (Rs cr) FY16A FY17E FY18E

Sales 11,244 12,597 14,534

Growth (%) 11.3 12.0 15.4

EBITDA 751 907 1,163

Margin (%) 6.7 7.2 8.0

PAT Adj 432 552 719

Growth (%) 24.2 27.8 30.4

Adj.EPS 9.1 11.6 15.1

Growth (%) 24.3 27.8 30.4

P/E 31.7 24.8 19.0

P/B 7.1 5.7 4.5

EV/EBITDA 19.2 15.7 12.1

RoE (%) 22.3 22.9 23.6

D/E 0.4 0.2 0.2

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TVS Motors Sensex Rebased

GEOJIT BNP PARIBAS Research Q1FY17 RESULT UPDATE

Hold

Headwinds from exports impact realisation. TVS Motors (TVS) is the third largest two- wheeler manufacturer in India with a domestic market share of 13.5%.

Q1FY17 sales grew by 12%YoY to Rs2,881cr, below our estimate of Rs3,095cr. PAT grew 21% YoY, marginally below our expectation.

EBITDA marginally improved by 25bpsYoY to 6.96%, lower than our estimate of 7.2% owing to negative realization growth.

De-growth in average realization at -0.5%YoY due to lower share of export revenue mix and higher low margin product mix.

TVS will increase its domestic market share through better volume growth on revival in rural demand and new launches.

We marginally lower our revenue and earnings estimate for FY17E by 2.8% & 4.8% on weak export market and retain our valuation at 20x FY18EPS with a reduced target price of Rs302 and maintain our HOLD rating.

Saji John Analyst

Quarterly Financials (Standalone) Profit & Loss Account

(Rs cr) Q1FY17 Q1FY16 YoY Growth (%) Q4FY16 QoQ Growth (%)

Sales 2,881 2,574 11.9 2,815 (2.3)

EBITDA 200 173 16.0 179 12.2

Depreciation 66 50 30.9 52 27.4

EBIT 134 122 9.9 127 6.0

Interest 10 13 (24.9) 13 (25.1)

Other Income 36 21 72.2 24 49.2

Exceptional Items - - - -

PBT 161 130 23.4 138 16.5

Tax 40 30 30.7 20 95.6

Reported PAT 121 100 21.2 118 3.0

Adjustment - - - - -

Adj PAT 121 100 21.2 118 3.0

No. of shares (cr) 48 48 48

EPS (Rs) 2.5 2.1 21.2 2.5 3.0

Source: Company, Geojit BNP Paribas Research, * The financials are as per new accounting standards for Q1FY17 and Q1FY16, while Q4FY16 are as per earlier standards.

Key Operational Parameters

Q1FY17 Q1FY16 YoY Growth % Q4FY16 QoQ Growth %

Domestic 6,14,953 5,19,069 18.5 5,59,731 9.9

Export 1,02,985 1,19,046 (13.5) 1,00,838 2.1

Total Volume (Nos.) 7,17,938 6,38,115 12.5 6,60,569 8.7

Net Realisation (Rs/unit) 40,129 40,337 (0.5) 42,615 (5.8)

Change in Estimates

Old estimates New estimates Change %

Year / Rs cr FY17E FY18E FY17E FY18E FY17E FY18E

Revenue 12,953 15,071 12,597 14,534 (2.75) (3.56)

EBITDA 959 1206 907 1163 5.73 3.56

Margins (%) 7.4 8.0 7.2 8.0 -20bps -

PAT 580 752 552 719 (4.82) (4.39)

EPS 12.2 15.8 11.6 15.1 (4.82) (4.39)

Standalone Financials Profit & Loss Account

Y.E March (Rs cr) FY14A FY15A FY16A FY17E FY18E

Sales 7,962 10,098 11,244 12,597 14,534

% change 12.7 26.8 11.3 12.0 15.4

EBITDA 478 604 751 907 1163

% change 16.9 26.4 24.2 20.8 28.2

Depreciation 132 153 190 255 308

EBIT 346 451 561 652 855

Interest 25 27 46 31 24

Other Income 30 33 51 105 116

PBT 353 456 566 726 946

% change 115.5 29.4 24.1 28.8 30.4

Tax 91 108 134 174 227

Tax Rate (%) 25.8 23.7 23.6 24.0 24.0

Reported PAT 262 348 432 552 719

Adj* 3 0 0 0 0

Adj PAT 264 348 432 552 719

% change 27.3 31.5 24.2 27.7 30.4

No. of shares (cr) 48 48 48 48 48

Adj EPS (Rs) 6 7 9 12 15

% change 27.3 31.5 24.3 27.7 30.4

DPS (Rs) 1 1 2 2 2

Cash flow


Net inc. + Depn. 357 469 622 807 1,027

Non-cash adj. 6 1 46 31 24

Changes in W.C 161 (385) 247 40 (260)

C.F.O 524 85 915 877 792

Capital exp. (258) (405) (389) (390) (408)

Change in inv. (28) (118) (165) (215) (221)

Other invest.CF 26 30 0 0 0

C.F - investing (260) (493) (554) (605) (629)

Issue of equity 0 0 0 0 0

Issue/repay debt (107) 443 (137) (144) (18)

Dividends paid (69) (83) (141) (82) (82)

Other finance.CF (23) (28) (50) (12) (23)

C.F - Financing (199) 331 (329) (238) (124)

Chg. in cash 65 (77) 32 54 58

Closing cash 83 5 38 72 110

Balance Sheet


Cash 83 5 38 72 110

Accounts Receivable 334 504 579 529 637

Inventories 548 820 826 966 1,274

Other Cur. Assets 80 67 58 55 72

Investments 896 1,012 1,185 1,398 1,598

Gross Fixed Assets 1,174 1,419 1,618 1,753 1,853

Net Fixed Assets 1,106 1,295 1,450 1,603 1,689

CWIP 48 89 128 99 106

Intangible Assets 20 35 40 51 57

Def. Tax (Net) (125) (153) (176) (205) (243)

Other Assets 451 777 659 673 776

Total Assets 3,440 4,451 4,786 5,241 6,078

Current Liabilities 999 1,264 1,544 1,528 1,732

Provisions 121 149 98 121 139

Debt Funds 476 919 758 585 529

Other Liabilities 429 475 449 601 635

Equity Capital 48 48 48 48 48

Rsrvs and Surplus 1,368 1,598 1,889 2,358 2,995

Shareholder‟s Fund 0 0 0 0 0

Total Liabilities 3,440 4,451 4,786 5,241 6,078

BVPS (Rs) 30 35 41 51 64

Ratios

Y.E March FY14A FY15A FY16A FY17E FY18E

Profitab. & Return

EBITDA margin (%) 6.0 6.0 6.7 7.2 8.0

EBIT margin (%) 4.4 4.5 5.0 5.2 5.9

Net profit mgn.(%) 3.3 3.4 3.8 4.4 4.9

ROE (%) 21.0 21.1 22.3 22.9 23.6

ROCE (%) 12.9 14.7 16.3 18.1 19.4

W.C & Liquidity

Receivables (days) 14.9 15.1 17.6 16.0 14.6

Inventory (days) 34.0 34.2 37.4 35.8 38.8

Payables (days) 58.1 56.6 63.8 61.3 56.5

Current ratio (x) 0.9 0.9 0.9 0.9 1.0

Quick ratio (x) 0.6 0.6 0.5 0.5 0.6

Turnover &Levg.

Gross asset T.O (x) 3.5 4.0 4.0 3.9 3.7

Total asset T.O (x) 8.1 9.3 9.7 9.3 8.1

Int. covge. ratio (x) 13.6 16.4 12.1 21.2 35.2

Adj. debt/equity (x) 0.3 0.6 0.4 0.2 0.2

Valuation ratios

EV/Sales (x) 1.8 1.4 1.3 1.1 1.0

EV/EBITDA (x) 29.4 24.2 19.2 15.7 12.1

P/E (x) 51.7 39.3 31.7 24.8 19.0

P/BV (x) 9.7 8.3 7.1 5.7 4.5

Recommendation Summary (last 3 years)

Dates Rating Target

19th October 2015 Accumulate 275 10th May 2016 Hold 316 28th July 2016 Hold 302

General Disclosures and Disclaimers

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