Please refer to important disclosures at the end of this report 1 Quarterly highlights (Standalone) Y/E March (` cr) 1QFY13 1QFY12 % chg (yoy) 4QFY12 % chg (qoq) Net Sales 1,820 1,746 4.2 1,627 11.8 EBITDA 108 117 (8.2) 99 8.7 Adj. EBITDA margin (%) 5.9 6.7 (80)bp 6.1 (17)bp Adj. PAT 51 59 (13.1) 57 (10.7) Source: Company, Angel Research TVS Motor Company (TVSL) reported better-than-expected results for 1QFY2013 led by higher-than-expected volumes and stronger-than-expected net average realization. Going ahead, we expect a challenging environment for the company due to rising competition in the two-wheeler sector amidst moderation in demand. However, we believe that the upcoming launches, new motorcycle in the executive segment in 2QFY2013 and new scooter in 4QFY2013 will be the key for the company to regain volume momentum going ahead. Due to attractive valuations, we recommend Accumulate on the stock. Better-than-expected performance for 1QFY2013: TVSL reported net sales growth of 4.2% yoy (11.8% qoq) to `1,820cr (better than our estimates) aided by upward revision in volumes by 5.4% and also due to strong growth in net average realization (up 8% yoy). Total volumes reported a decline of 3.0% yoy (1.7% qoq) led by 10.1% and 4.0% yoy decline in motorcycle and scooter volumes, respectively. EBITDA margin came in-line with our estimates at 5.9%, showing a decline of 80bp yoy (flat qoq) due to increase in other expenditure. Other expenditure jumped 210bp yoy primarily due to increase in advertising spends on key brands like Wego, Star City, Sport and recently introduced Apache and Scooty Pep. Net profit registered a decline of 13.1% yoy (down 10.7% qoq) to `51cr. Net profit was 14.2% above our estimates due to higher-than-expected top-line. Outlook and valuation: We have tweaked our volume estimates slightly and model volume growth of 3.2%/6.9% for FY2013E/14E, respectively. Going forward, we expect operating margins to remain under pressure due to rising competition in the two-wheeler sector leading to increase in advertising spends. Nonetheless, at `38, TVSL is trading at attractive valuations of 7.1x FY2014E EPS. We recommend Accumulate rating on the stock with a target price of `43. Key financials (Standalone) Y/E March (` cr) FY2011 FY2012 FY2013E FY2014E Net Sales 6,288 7,126 7,545 8,301 % chg 41.9 13.3 5.9 10.0 Net Profit 206 249 234 255 % chg 71.8 20.9 (5.9) 8.9 EBITDA (%) 6.2 6.6 6.2 6.1 EPS (`) 4.3 5.2 4.9 5.4 P/E (x) 8.8 7.3 7.8 7.1 P/BV (x) 1.8 1.6 1.4 1.2 RoE (%) 22.1 23.0 18.8 18.1 RoCE (%) 15.2 18.5 16.3 16.3 EV/Sales (x) 0.3 0.2 0.2 0.2 EV/EBITDA (x) 4.6 3.4 3.4 3.0 Source: Company, Angel Research ACCUMULATE CMP `38 Target Price `43 Investment Period 12 Months Stock Info Sector Bloomberg Code Shareholding Pattern (%) Promoters 59.3 MF / Banks / Indian Fls 20.1 FII / NRIs / OCBs 2.8 Indian Public / Others 17.8 Abs. (%) 3m 1yr 3yr Sensex (0.3) (5.8) 11.4 TVS Motor (6.5) (22.3) 21.4 Automobile Avg. Daily Volume Market Cap ( ` cr) Beta 52 Week High / Low Net Debt ( ` cr) 391 Face Value (`) BSE Sensex Nifty Reuters Code 1.0 17,144 5,200 TVSM.BO TVSL@IN 1,822 1.1 70/32 401,053 Yaresh Kothari 022-3935 7800 Ext: 6844 [email protected]TVS Motor Company Performance Highlights 1QFY2013 Result Update | Automobile July 30, 2012
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TVS Motor Company ACCUMULATE€¦ · TVS Motor Company (TVSL) reported better-than-expected results for 1QFY2013 led by higher-than-expected volumes and stronger-than-expected net
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Please refer to important disclosures at the end of this report 1
TVS Motor Company (TVSL) reported better-than-expected results for 1QFY2013 led by higher-than-expected volumes and stronger-than-expected net average realization. Going ahead, we expect a challenging environment for the company due to rising competition in the two-wheeler sector amidst moderation in demand. However, we believe that the upcoming launches, new motorcycle in the executive segment in 2QFY2013 and new scooter in 4QFY2013 will be the key for the company to regain volume momentum going ahead. Due to attractive valuations, we recommend Accumulate on the stock.
Better-than-expected performance for 1QFY2013: TVSL reported net sales growth of 4.2% yoy (11.8% qoq) to `1,820cr (better than our estimates) aided by upward revision in volumes by 5.4% and also due to strong growth in net average realization (up 8% yoy). Total volumes reported a decline of 3.0% yoy (1.7% qoq) led by 10.1% and 4.0% yoy decline in motorcycle and scooter volumes, respectively. EBITDA margin came in-line with our estimates at 5.9%, showing a decline of 80bp yoy (flat qoq) due to increase in other expenditure. Other expenditure jumped 210bp yoy primarily due to increase in advertising spends on key brands like Wego, Star City, Sport and recently introduced Apache and Scooty Pep. Net profit registered a decline of 13.1% yoy (down 10.7% qoq) to `51cr. Net profit was 14.2% above our estimates due to higher-than-expected top-line.
Outlook and valuation: We have tweaked our volume estimates slightly and model volume growth of 3.2%/6.9% for FY2013E/14E, respectively. Going forward, we expect operating margins to remain under pressure due to rising competition in the two-wheeler sector leading to increase in advertising spends. Nonetheless, at `38, TVSL is trading at attractive valuations of 7.1x FY2014E EPS. We recommend Accumulate rating on the stock with a target price of `43.
Total three-wheelers 7,717 12,066 (36.0) 8,936 (13.6) 39,739 39,860 (0.3)
Source: Company, Angel Research
Better-than-expected top-line growth: TVSL reported net sales growth of 4.2% yoy (11.8% qoq) to `1,820cr (higher than our estimate of `1,585cr) mainly on account of upward revision in volumes by 5.4% and also due to strong growth in net average realization (up 8% yoy). Volume for 1QFY2013 (as per SIAM) witnessed a decline of 3.0% yoy (1.7% qoq) led by 10.1% and 4.0% yoy decline in motorcycle and scooter volumes, respectively. Two-wheeler demand off-late has witnessed moderation in growth and increase in competitive activity which has resulted in poor performance by TVSL. Management clarified that there is a difference in accounting treatment for monthly and quarterly volumes. For sales outside Tamil Nadu, especially in the North, TVSL bills vehicles to its subsidiary Sundaram Auto Components (SACL), which in turn sells vehicles to dealers. For monthly volumes, TVSL reports sales to dealers and by SACL to dealers. However, for quarterly volumes, sales by TVSL to SACL and to dealers is reported and hence the difference.
TVS Motor Company | 1QFY2013 Result Update
July 30, 2012
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Exhibit 4: Total volumes decline 3.0% yoy
Source: Company, Angel Research
Exhibit 5: Strong growth in net average realization
Source: Company, Angel Research
Exhibit 6: Better-than-expected top-line growth
Source: Company, Angel Research
Exhibit 7: Domestic market share trend
Source: Company, SIAM, Angel Research
EBITDA margin at 5.9%: TVSL’s EBITDA margin came in-line with our estimates at 5.9%, showing a decline of 80bp yoy (flat qoq) largely due to increase in other expenditure. Other expenditure jumped 210bp yoy primarily due to increase in advertising spends on key brands like Wego, Star City, Sport and recently introduced Apache and Scooty Pep. Raw-material expenses on the other hand witnessed a decline of 180bp yoy (flat sequentially) during the quarter. Operating profit declined 8.2% yoy (up 8.7% qoq) to `108cr.
Net profit down 13.1% yoy: TVSL reported a 13.1% yoy (10.7% qoq) decline in its net profit to `51cr; however, it was 14.2% ahead of our estimates largely due to better-than-expected growth in top-line. The bottom-line benefited from slightly lower tax-rate (at 22.7% as against 24.5% in 1QFY2012) and increase in other income (up 40.3% yoy to `5cr).
6.4 6.7 6.1 5.9 6.7 6.9 6.5 6.1 5.9
74.0 73.7 74.7 74.6 76.9 75.5 73.9 74.2 74.6
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(%) EBITDA margin Raw material cost/sales
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TVS Motor Company | 1QFY2013 Result Update
July 30, 2012
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Investment arguments
Success of new launches key to volume growth: TVSL posted healthy 8.1% yoy growth in its volumes in FY2012 amidst slowdown in two-wheeler demand and rising competitive intensity in the sector. TVSL is in the process of launching two new models in FY2013 (new executive segment bike in 2QFY2013 and a new scooter in 4QFY2013), and we believe the success of these new models is key for the company to register volume growth going ahead. We expect the new launches to enable TVSL to ramp up its monthly run rate of two-wheelers and post annual volumes of 2.27mn and 2.42mn units in FY2013E and FY2014E, respectively, from 2.20mn units in FY2012.
Adverse product mix to weaken margins: Declining contribution of
three-wheelers and scooters in the overall product mix coupled with rising
competition is likely to pressurize the company’s operating margin going
ahead. Nonetheless, weakening of commodity prices will provide some
comfort on the margin front. We expect the company’s margin to decline by
~40bp in FY2013.
Outlook and valuation
Going ahead, we expect a challenging environment for the company due to rising competition in the two-wheeler sector amidst moderation in demand. We believe that the upcoming launches, new motorcycle in the executive segment in 2QFY2013 and new scooter in 4QFY2013 will be the key for the company to regain volume momentum going ahead. We have tweaked our volume estimates slightly and model volume growth of 3.2%/6.9% for FY2013E/14E, respectively. We expect operating margins to remain under pressure due to rising competition in the two-wheeler sector leading to increase in advertising spends.
Exhibit 10: Change in estimates Y/E March Earlier Estimates Revised Estimates % chg
FY2013E FY2014E FY2013E FY2014E FY2013E FY2014E
Net Sales (` cr) 7,442 8,198 7,545 8,301 1.4 1.3
OPM (%) 6.2 6.1 6.2 6.1 - -
EPS (`) 4.8 5.2 4.9 5.4 3.6 2.5
Source: Company, Angel Research
At `38, TVSL is trading at attractive valuations of 7.1x FY2014E earnings. We recommend Accumulate rating on the stock with a target price of `43 valuing the stock at 8.0x FY2014E earnings.
TVS Motor (TVSL), a flagship company of TVS Group, is the third largest 2W manufacturer in India. The company is present across the motorcycles, scooters and mopeds segments, having a market share of ~8%, ~22% and 100%, respectively. The company successfully ventured into the 3W segment in FY2009 and garnered a ~5% market share as of March 31, 2012. The company has three manufacturing facilities in India, located at Hosur (Tamil Nadu), Mysore (Karnataka) and Solan (Himachal Pradesh) with 2W and 3W capacity of 2.75mn and 75,000 units, respectively. TVSL is also the second largest exporter of two-wheelers in the country.
TVS Motor Company | 1QFY2013 Result Update
July 30, 2012
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Profit and loss statement (Standalone)
Y/E March (` cr) FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E
Total operating income 3,739 4,430 6,288 7,126 7,545 8,301
% chg 14.2 18.5 41.9 13.3 5.9 10.0
Total expenditure 3,552 4,243 5,896 6,657 7,074 7,798
Net raw material costs 2,783 3,137 4,614 5,261 5,550 6,108
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Disclosure of Interest Statement TVS Motor Company
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
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