Please refer to important disclosures at the end of this report 1 Y/E March ( ` cr) 2QFY2012 1QFY2012 % chg (qoq) 2QFY2011 % chg (yoy) Total Income 354 347 1.9 269 31.3 EBITDA 33 31 7.0 22 48.9 EBITDA margin (%) 9.3 8.8 44bp 8.2 109bp Reported PAT 11 12 (7.7) 10 11.1 Source: Company, Angel Research TVS Srichakra (TVSSL) reported a mixed set of numbers for 2QFY2012. The company’s net sales witnessed robust growth of 31.3% yoy to `354cr, which resulted in a 109bp yoy increase in the company’s OPM to 9.3%. However, PAT increased only by 11.1% yoy to `11cr, mainly due to high interest cost as loans have increased substantially to `385cr for 1HFY2012. We expect the company to report profit of `48cr and `71cr for FY2012E and FY2013E, respectively. We maintain our Buy recommendation on the stock. Expansion at Madurai plant and better performance of two-wheeler sales to drive volume: TVSSL increased its capacity substantially in FY2010 at its Pantnagar plant to meet the growing demand for tyres. Consequently, in 1HFY2012, the company’s debt increased to `385cr because of the expansion plan carried out at the Madurai plant to increase its SKUs (Stock Keeping Units). Also, the major segment, the two-wheeler segment, to which the company caters, has witnessed growth of 15% YTD and is expected to witness a 13% CAGR over FY2011-13E. These factors will lead to an 11% CAGR in the company’s volumes over FY2011-13E. Outlook and valuation: We expect TVSSL to post a 23% revenue CAGR over FY2011-13E to `1,636cr, aided by an 11% volume increase. The operating margin of the company is expected to increase by 174bp to 10.1% in FY2013E on the back of the expected softening of rubber prices. We expect PAT to grow at a CAGR of 35% over FY2011-13E to `71cr in FY2013E. At `314, TVSSL is trading at 3.4x FY2013E earnings and P/B of 1.1x for FY2013E. We maintain our Buy recommendation on the stock with a target price of `464, based on a target PE of 5x for FY2013E. Key financials Y/E March ( ` cr) FY2010 FY2011 FY2012E FY2013E Net sales 701 1085 1437 1636 % chg 21.6 54.9 32.4 13.8 Net profit 30 39 48 71 % chg 233.0 31.0 23.0 47.8 EBITDA margin (%) 9.3 8.4 9.1 10.1 EPS ( ` ) 39.0 51.1 62.8 92.9 P/E (x) 8.0 6.1 5.0 3.4 P/BV (x) 2.8 2.1 1.6 1.1 RoE (%) 34.8 34.4 31.6 33.2 RoCE (%) 19.9 19.7 19.7 23.0 EV/Sales (x) 0.6 0.4 0.4 0.4 EV/EBITDA (x) 6.2 5.4 4.7 3.6 Source: Company, Angel Research BUY CMP `314 Target Price `464 Investment Period 12 Months Stock Info Sector Bloomberg Code Shareholding Pattern (%) Promoters 44.6 MF / Banks / Indian Fls 8. 0 FII / NRIs / OCBs 0.1 Indian Public / Others 47.3 Abs.( %) 3m 1yr 3yr Sensex (0.6) (17.9) 83.2 TVSSL ( 10.4) 4. 5 448.2 Nif ty 4,906 Reuters Code TVSC.BO SRTY IN 52 Week High / Low 400 / 226 Tyres Market Cap ( `cr) 240 Beta 0.3 Avg. Daily Volume 1,984 Face Value ( `) 10 BSE Sensex 16,372 Tejashwini Kumari 30940000 ext: 6856 [email protected]TVS Srichakra Performance Highlights Company Update | Tyres November 18, 2011
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TVS Srichakra (TVSSL) reported a mixed set of numbers for 2QFY2012. The
company’s net sales witnessed robust growth of 31.3% yoy to ` 354cr, which
resulted in a 109bp yoy increase in the company’s OPM to 9.3%. However, PATincreased only by 11.1% yoy to ` 11cr, mainly due to high interest cost as loans
have increased substantially to ` 385cr for 1HFY2012. We expect the company to
report profit of ` 48cr and ` 71cr for FY2012E and FY2013E, respectively. We
maintain our Buy recommendation on the stock.
Expansion at Madurai plant and better performance of two-wheeler sales to drive
volume: TVSSL increased its capacity substantially in FY2010 at its Pantnagar
plant to meet the growing demand for tyres. Consequently, in 1HFY2012, the
company’s debt increased to ` 385cr because of the expansion plan carried out at
the Madurai plant to increase its SKUs (Stock Keeping Units). Also, the major
segment, the two-wheeler segment, to which the company caters, has witnessedgrowth of 15% YTD and is expected to witness a 13% CAGR over FY2011-13E.
These factors will lead to an 11% CAGR in the company’s volumes over FY2011-13E.
Outlook and valuation: We expect TVSSL to post a 23% revenue CAGR over
FY2011-13E to ` 1,636cr, aided by an 11% volume increase. The operating
margin of the company is expected to increase by 174bp to 10.1% in FY2013E
on the back of the expected softening of rubber prices. We expect PAT to grow at
a CAGR of 35% over FY2011-13E to ` 71cr in FY2013E. At ` 314, TVSSL is trading
at 3.4x FY2013E earnings and P/B of 1.1x for FY2013E. We maintain our
Buy recommendation on the stock with a target price of ` 464, based on a target
TVSSL has increased its debt to ` 385cr in 1HF2012 for the expansion plan at theMadurai plant to increase its SKUs. After the expansion in installed capacity at its
Pantnagar plant in FY2010, the company is on a growth trajectory to cater to
various segments and, hence, is now expanding its SKUs. Also, the company has
announced to invest in equity shares of a subsidiary being formed in the UK for the
acquisition of a distribution business in Europe.
High domestic demand for two-wheelers to drive volumes
Two-wheeler domestic sales have witnessed growth of 14.8% yoy YTD, whereas
M&HCVs grew by 8.2% and passenger vehicles reported a decline of 1.8% for the
same period. As TVSSL is largely into the two and three-wheeler tyres segments,
it continues to be insulated from the current slowdown in the automobile sector.
We expect the two-wheeler segment to grow at a 13% CAGR over FY2011-13E.
Based on this growth and increased capacity utilization, we expect the company’s
volume to grow at a CAGR of 11% over FY2011-13.
Exhibit 5: Domestic sales of automobiles (April–October) (in ’000)
Rubber, the key raw material of the company, witnessed a price increase of ~48%from ` 167/kg in May 2010 to ` 246/kg in May 2011. Though rubber prices are
witnessing a downtrend from April 2011, any further price rise may pressurise the
company’s operating margin.
Exhibit 14: Rubber prices
Source: Rubber Board
Due to a difference in mix, rubber cost is typically 30% lower for TVSSL than other
tyre companies.
Sensitivity analysis of EPS
The sensitivity analysis reflects the changes in EPS w.r.t. the percentage change in
rubber price and realization. On our assumption of a 4% decrease in rubber price
and a 2% increase in realization, the EPS for FY2013E stands at ` 92.9. However, if
rubber price goes down by 10% and realization increases by 10%, EPS can grow to
` 210.9; but if rubber price goes up by 10% with the same increase in realization,
EPS will decrease to ` 85.7.
Exhibit 15: Impact on EPS w.r.t. % chg. in realization and rubber price
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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Disclosure of Interest Statement TVS Srichakra
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
Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)
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