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TVS Motor
Indonesia ops remain a drag;
Downgrade to U/P from Buy
Widening valuation vs peers; Cutting PO by 13%
We downgrade our rating for TVS Motor to Underperform from Buy, and lower our
PO by 13% to Rs66, driven by: (1) our 8-11% EPS forecast cuts for the next two
years, to factor in delayed recovery in its Indonesian subsidiary, and (2) likely derating
due to widening valuation discount to peers.
Indonesia continues to disappoint
Despite several initiatives – expansion of product portfolio, enhancing distribution
network, and tying up with well-known financiers, Indonesian unit sales volumes
were similar to the previous year, i.e. well below profit break-even levels. Clearly,
we believe the business will take more than expected time to deliver. While
management remains optimistic on recovery, we cannot identify any tangible
drivers for a turnaround earlier than FY13E.
Domestic operations likely to revert to tardy growth
We expect TVS Motor’s domestic two-wheelers growth to lag the industry at 11%
in FY12E and 9% in FY13E, given (1) renewed competition from Honda’s scooter
business, which will benefit from commissioning of a new unit by Sept, and (2)
failure of commuter bike Jive – commuter bike is still the largest segment by
industry volume. However, its monopoly in mopeds and fast-growing three
wheelers business will ensure overall growth in double-digits, in our opinion.
Margins will likely be capped
Despite factoring in lower product amortization charges and shift to relatively
more profitable three wheelers, we expect stand-alone EBITDA margins to be
restricted at c.7.0% over the forecast period, albeit better than the FY11E’s 6.4%.
Overall swings will therefore depend on the less transparent Indonesian business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TVS Motor
Indonesia ops remain a drag;
Downgrade to U/P from Buy
Widening valuation vs peers; Cutting PO by 13%
We downgrade our rating for TVS Motor to Underperform from Buy, and lower our
PO by 13% to Rs66, driven by: (1) our 8-11% EPS forecast cuts for the next two
years, to factor in delayed recovery in its Indonesian subsidiary, and (2) likely derating
due to widening valuation discount to peers.
Indonesia continues to disappoint
Despite several initiatives – expansion of product portfolio, enhancing distribution
network, and tying up with well-known financiers, Indonesian unit sales volumes
were similar to the previous year, i.e. well below profit break-even levels. Clearly,
we believe the business will take more than expected time to deliver. While
management remains optimistic on recovery, we cannot identify any tangible
drivers for a turnaround earlier than FY13E.
Domestic operations likely to revert to tardy growth
We expect TVS Motor’s domestic two-wheelers growth to lag the industry at 11%
in FY12E and 9% in FY13E, given (1) renewed competition from Honda’s scooter
business, which will benefit from commissioning of a new unit by Sept, and (2)
failure of commuter bike Jive – commuter bike is still the largest segment by
industry volume. However, its monopoly in mopeds and fast-growing three
wheelers business will ensure overall growth in double-digits, in our opinion.
Margins will likely be capped
Despite factoring in lower product amortization charges and shift to relatively
more profitable three wheelers, we expect stand-alone EBITDA margins to be
restricted at c.7.0% over the forecast period, albeit better than the FY11E’s 6.4%.
Overall swings will therefore depend on the less transparent Indonesian business.
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