TVS Motor- Mixed bag, Upgrade to Accumulate:: Emkay

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �

TVS Motor Ltd.

Mixed bag, Upgrade to Accumulate

ACCUMULATE

CMP: Rs 62                                       Target Price: Rs 72

---

n     EBIDTA at Rs 1bn (est.-Rs 1.1bn)  and margins at 6.1% (est.-6.9%) were below est., PAT at Rs 557mn (est- Rs 524mn) was above est. due to higher other income and lower interest cost

n     Demand outlook remains strong across segments. ‘Wego’ run rate of ~12000 units p.m., expect to touch 20,000 units p.m in FY12. Exports to provide added momentum to 3 wheelers

n     Retain our FY12 EPS of Rs 6 per share. Upgrade our rating from REDUCE to ACCUMULATE post the stock price correction

n     Key concerns arise from continued support to various subsidiaries (amount invested in 9MFY11 at Rs 1.3bn). Key risks - sharp jump in metal price/demand slowdown

Net Sales – marginally above est.

Net sales at Rs 16.5bn was marginally above est. of Rs 16.2bn. Average selling price

(ASP) per vehicle stood at Rs 30,781 (up 7.5% YoY and 1.6% QoQ).

EBIDTA below est., margins at 6.1% disappoints

EBITDA at Rs 1bn was below our est. of Rs 1.1bn. EBIDTA margins at 6.1% were

below est of 6.9%. Higher raw material cost (73.2% of sales vs est.72.5%) is the key

reason for lower margins. Expect margins to improve QoQ as company has raise prices

by 1% to 1.5% w.e.f. January 2011.

APAT at Rs 557mn above est.

Net profits at Rs 557mn was above our est of Rs 524mn, due to lower interest expense of

Rs 96mn (est. Rs 142mn) and higher other income of Rs 72mn (est. of Rs 11mn).

Valuations and View

At CMP of Rs 62, the stock trades at PER of 14.6x and 10.4x and EV/EBIDTA of 8.7x and

6.6x our FY11 and FY12 standalone estimates respectively. We have marginally upgraded

our FY11 EPS estimate by 2.4% to Rs 4.2 and retain our FY12 EPS at Rs 6.0 Post the

correction in stock price, we upgrade our rating on the stock to ACCUMULATE from

REDUCE. We have valued the stock at PER of 12x and EV/EBIDTA of 7.5x our FY12

standalone estimates. We continue to have concerns with Indonesian business and

financial support required by various subsidiaries. During 9MFY11, TVS has invested

Rs 1.3bn in two subsidiaries (TVS Motor Services and PT TVS Motor Company Indonesia).

Key risks arise from sharp junp in metal prices/demand slowdown.