Visit http://indiaer.blogspot.com/ for complete details For 2QFY2011, TVS Motor (TVSM) posted 43% yoy top-line growth, in line with
our estimates. The bottom line grew by 123.1% yoy, above our expectations,
largely due to lower interest cost. Going forward, we broadly maintain our
earnings estimates for TVSM. However, future valuation of the stock would be
determined by consistent volume growth, improvement in market share and an
uptick in margins. We believe that the recent run-up in the stock price factors in
the higher volume and earnings growth expected over FY2010–12E.
We remain Neutral on the stock.
Volume growth at 33%, earnings driven by margin expansion: TVSM reported
turnover of `1,616cr (`1,130cr), a jump of 43% yoy, which primarily came on the
back of the substantial 33.4% yoy increase in total volumes and about 6.8% yoy
jump in average realisations. During the quarter, TVSM’s OPM witnessed a
marginal 20bp qoq expansion to 6.7%, marginally below our estimates.
Net profit grew by 123% yoy to `54.8cr (`24.6cr). Robust volume, EBITDA margin
expansion and lower-than-expected interest cost and tax rate helped TVSM to
report robust earnings growth in 2QFY2011.
Outlook and valuation: We estimate TVSM to post a 26.8% CAGR in top line and
around 61.2% CAGR in net profit over FY2010–12E, aided by around 21.9%
CAGR in volume and improving operating performance owing to change in
product mix and better operating leverage. Thus, we expect TVSM to report EPS of
`4.5 in FY2011E and `5.9 in FY2012E. However, considering TVSM’s inconsistent
track record, we remain cautious on its relative performance vis-à-vis peers.
At `75, the stock is trading at 16.9x FY2011E and 12.8x FY2012E earnings.
We continue to maintain our Neutral view on the stock.
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