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Result Update
TVS Motor:“ Upgrading to BUY ”
TVS’s Q3 FY 11 numbers were in-line with our expectations. Net sales
increased by 50% yoy to `16,134mn, on a 40% yoy growth in volumes and an
8% yoy growth in realizations. As far as segmental volumes are concerned,
Motorcycle sales increased by 38% yoy, scooter sales grew by 64% yoy and
mopeds grew by 26% yoy. The new launches Jive and Wego provided a fillip to
the motorcycle and scooter sales respectively. Three wheeler sales crossed
the 10,000 mark in the quarter for the first time.
EBITDA margins were down by 50 bps yoy and 40 bps qoq at 7.3% due to hike
in input costs, as RM costs as a % of sales were at 74.7% as against 71.6%
in Q3 FY10. However, margins got support from the reduced employee costs
(5.38% v/s 5.85% yoy) and other expenses (14.8% v/s16.3%) as a % of sales.
Net profits were up 136% yoy to `558mn on a low base driven by higher other
income and lower interest expenses. Lower interest expenses were driven by
repayment of debt of ~2bn during the quarter. On a qoq basis, the growth was
flattish.
The company’s Indonesian operations sold 14,809 units in the nine month
period ending December 2010, a growth of 42% v/s 10,448 units yoy.
The company has declared an interim dividend at `0.5 per share on the
enhanced capital thus absorbing a sum of `277mn, including dividend
distribution tax.
Management view
Management expects to exceed their FY 11E volume guidance of 2mn
TVS took a price increase of 1.5% in January 2011, which will be reflected in the Q4
figures
Wego is launched on a pan India basis and is currently selling 12-13,000 units per
month, and is expected to sell ~20-30,000 units per month from FY 12E
The capacity is currently at 2.8mn since its recent expansion, with a utilization rate of
70%.
Jive is performing moderately by selling 7000-8000 units per month and is expected
to sell 15,000 units per month from FY 12E
TVS will launch two new variants in FY 12, one will be in the Apache family, i.e. a
premium bike and the other in the Scooty family, i.e. smaller scooter segment.
Market share at the end of the quarter was – Scooters 22%, Mopeds 100% and
Motor cycles 8%.
Within the three wheeler segment, in FY 12E, the company is expecting to sell 5000
units per month with higher concentration on exports
In the Indonesian business, TVS is selling 1000-1200 units per month, which the
management expects to sell 6,000 units per month from FY 12E to make it EBITDA
breakeven. TVS has 150 dealer outlets in Indonesia, which it expects to make 200
by the end of FY11E.
The net debt at the end of the quarter was `4bn after repaying debt of `2bn in the
quarter.
Tax rate is expected to be 25% in FY 12E
Outlook and valuation
TVS Motor‘s Q3 FY11 results were in line with our expectations. Margin decline was due
to higher input costs, however, lower employee costs and other expenses coupled with
a better product mix with higher contribution of three wheelers and scooters led to a 2%
qoq increase in net realizations thus leading to less steeper decline in margins.
Repayment of debt of ~2bn led to lower interest expenses. Going forward, we expect
TVS to end the year with volumes of 2.01 mn. The two new launches in the form of
variants of Apache and Star City in FY 12 and the continued success of the existing
models and recent launches Jive and Wego would lead to a better volume performance
in FY12 at 2.4mn. The company has recently expandied their capacity to 2.8 mn from
2.4 mn, functioning at 70% utilization rates. This will rule out any chances of capacity
constraints and lead to operational leverage as demand improves. We anticipate FY13E
volumes to be at 2.76mn units.
The company’s Indonesian operations is in a moderate growth phase with volumes at
~15,000 till date in FY11E. Dealer expansion and launch of two upgraded models of
TVS Apache and TVS RockZ may push the volumes to the 20,000 mark in FY 11E. Going
forward, we expect 30,000 and 40,000 units to be sold in FY 12E and FY 13E respectively
on dealer network expansion. Management believes the EBITDA breakeven for these
operations to come at 72,000 units by FY 12E, which we believe is unlikely to happen
even by FY13E with competition from the 2 wheeler giants Honda and Yamaha
intensifying and TVS finding it difficult to expand their volumes. Hence, we believe that
the Indonesian operations will pull down the consolidated earnings performance within
our investment horizon.
However, with domestic scooter market share improving, moped sales growing at a
decent pace, motorcycle sales getting a boost from new launches and 3 wheeler
getting a good response in the states where it is launched, we are positive on the
domestic business. Opening of permits may have an additional positive impact on 3
wheeler sales which the management expects to move up to 5000 per month by FY12E,
which we believe is quite possible. Margins are expected to improve hereon with
operating leverage coming in and product mix tilting towards 3 wheelers and scooters.
As far as competition in the domestic markets is concerned, Honda will be a threat with
solo launches, but TVS with its new launches and good response to Wego will manage
to arrest a steep decline in its market share. We are maintaining our FY11E and FY12E
estimates, while introducing FY13E estimates and rolling over our target price to FY13.
Based on an EV/EBITDA multiple of 5.5x on FY13E EBITDA, we value the stock at `86
per share, which is an upside of 39% from current levels. We upgrade the stock post
the recent correction from HOLD to BUY.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Result Update
TVS Motor:“ Upgrading to BUY ”
TVS’s Q3 FY 11 numbers were in-line with our expectations. Net sales
increased by 50% yoy to `16,134mn, on a 40% yoy growth in volumes and an
8% yoy growth in realizations. As far as segmental volumes are concerned,
Motorcycle sales increased by 38% yoy, scooter sales grew by 64% yoy and
mopeds grew by 26% yoy. The new launches Jive and Wego provided a fillip to
the motorcycle and scooter sales respectively. Three wheeler sales crossed
the 10,000 mark in the quarter for the first time.
EBITDA margins were down by 50 bps yoy and 40 bps qoq at 7.3% due to hike
in input costs, as RM costs as a % of sales were at 74.7% as against 71.6%
in Q3 FY10. However, margins got support from the reduced employee costs
(5.38% v/s 5.85% yoy) and other expenses (14.8% v/s16.3%) as a % of sales.
Net profits were up 136% yoy to `558mn on a low base driven by higher other
income and lower interest expenses. Lower interest expenses were driven by
repayment of debt of ~2bn during the quarter. On a qoq basis, the growth was
flattish.
The company’s Indonesian operations sold 14,809 units in the nine month
period ending December 2010, a growth of 42% v/s 10,448 units yoy.
The company has declared an interim dividend at `0.5 per share on the
enhanced capital thus absorbing a sum of `277mn, including dividend
distribution tax.
Management view
Management expects to exceed their FY 11E volume guidance of 2mn
TVS took a price increase of 1.5% in January 2011, which will be reflected in the Q4
figures
Wego is launched on a pan India basis and is currently selling 12-13,000 units per
month, and is expected to sell ~20-30,000 units per month from FY 12E
The capacity is currently at 2.8mn since its recent expansion, with a utilization rate of
70%.
Jive is performing moderately by selling 7000-8000 units per month and is expected
to sell 15,000 units per month from FY 12E
TVS will launch two new variants in FY 12, one will be in the Apache family, i.e. a
premium bike and the other in the Scooty family, i.e. smaller scooter segment.
Market share at the end of the quarter was – Scooters 22%, Mopeds 100% and
Motor cycles 8%.
Within the three wheeler segment, in FY 12E, the company is expecting to sell 5000
units per month with higher concentration on exports
In the Indonesian business, TVS is selling 1000-1200 units per month, which the
management expects to sell 6,000 units per month from FY 12E to make it EBITDA
breakeven. TVS has 150 dealer outlets in Indonesia, which it expects to make 200
by the end of FY11E.
The net debt at the end of the quarter was `4bn after repaying debt of `2bn in the
quarter.
Tax rate is expected to be 25% in FY 12E
Outlook and valuation
TVS Motor‘s Q3 FY11 results were in line with our expectations. Margin decline was due
to higher input costs, however, lower employee costs and other expenses coupled with
a better product mix with higher contribution of three wheelers and scooters led to a 2%
qoq increase in net realizations thus leading to less steeper decline in margins.
Repayment of debt of ~2bn led to lower interest expenses. Going forward, we expect
TVS to end the year with volumes of 2.01 mn. The two new launches in the form of
variants of Apache and Star City in FY 12 and the continued success of the existing
models and recent launches Jive and Wego would lead to a better volume performance
in FY12 at 2.4mn. The company has recently expandied their capacity to 2.8 mn from
2.4 mn, functioning at 70% utilization rates. This will rule out any chances of capacity
constraints and lead to operational leverage as demand improves. We anticipate FY13E
volumes to be at 2.76mn units.
The company’s Indonesian operations is in a moderate growth phase with volumes at
~15,000 till date in FY11E. Dealer expansion and launch of two upgraded models of
TVS Apache and TVS RockZ may push the volumes to the 20,000 mark in FY 11E. Going
forward, we expect 30,000 and 40,000 units to be sold in FY 12E and FY 13E respectively
on dealer network expansion. Management believes the EBITDA breakeven for these
operations to come at 72,000 units by FY 12E, which we believe is unlikely to happen
even by FY13E with competition from the 2 wheeler giants Honda and Yamaha
intensifying and TVS finding it difficult to expand their volumes. Hence, we believe that
the Indonesian operations will pull down the consolidated earnings performance within
our investment horizon.
However, with domestic scooter market share improving, moped sales growing at a
decent pace, motorcycle sales getting a boost from new launches and 3 wheeler
getting a good response in the states where it is launched, we are positive on the
domestic business. Opening of permits may have an additional positive impact on 3
wheeler sales which the management expects to move up to 5000 per month by FY12E,
which we believe is quite possible. Margins are expected to improve hereon with
operating leverage coming in and product mix tilting towards 3 wheelers and scooters.
As far as competition in the domestic markets is concerned, Honda will be a threat with
solo launches, but TVS with its new launches and good response to Wego will manage
to arrest a steep decline in its market share. We are maintaining our FY11E and FY12E
estimates, while introducing FY13E estimates and rolling over our target price to FY13.
Based on an EV/EBITDA multiple of 5.5x on FY13E EBITDA, we value the stock at `86
per share, which is an upside of 39% from current levels. We upgrade the stock post
the recent correction from HOLD to BUY.
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