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TVS Motors (TVSM.BO)
Neutral Equity Research
Below expectations: Margins pose valuation risk; stay Neutral
What surprised us
TVS Motors reported FY11 stand-alone net income of Rs1.9bn, up 119%
yoy and 5% below our and Bloomberg consensus estimates. 4Q net
income was Rs0.4bn, up 105% yoy, down 25% qoq and 21% below our
estimates. The 4Q miss was mainly driven by higher other income (5%
above our estimates) driving 50bps sequential decline in EBITDA margin,
and causing 4Q PBT to be lower by about 20%. We revise our estimates for
FY12E/13E by – 7% to -8% mainly on lower margin assumptions . Our
revised FY12E EPS is 20% below Bloomberg consensus estimates.
What to do with the stock
We retain our Neutral rating and revise our 12 m P/E based TP price to
Rs52 (from Rs56) on revised estimates. Our Neutral rating is driven by: 1)
We believe low operating margins of this company relative to 2-wheeler
peers (Hero Honda and Bajaj Auto) enhances the risk profile of earnings,
and probability of negative earnings surprises in an environment of
increasing competition or a potential slowdown in growth. 2) Low base of
operations in Indonesia is also likely to be a drag on consolidated returns
on capital in our view, posing incremental risks to valuation. 3) On the
upside, TVS Motor could benefit froma ramp-up of volumes in the higher
margin 3-wheeler business during FY2012-13E, and and we see capacity
constraints at market leaders Honda scooters and Hero Honda motorcycles
during 2011. Key risks: (upside) higher-than-expected margins from 3-
wheeler business;(downside) lower-than-expected capacity constraints at
Honda and Hero Honda, higher-than-expected commodity costs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TVS Motors (TVSM.BO)
Neutral Equity Research
Below expectations: Margins pose valuation risk; stay Neutral
What surprised us
TVS Motors reported FY11 stand-alone net income of Rs1.9bn, up 119%
yoy and 5% below our and Bloomberg consensus estimates. 4Q net
income was Rs0.4bn, up 105% yoy, down 25% qoq and 21% below our
estimates. The 4Q miss was mainly driven by higher other income (5%
above our estimates) driving 50bps sequential decline in EBITDA margin,
and causing 4Q PBT to be lower by about 20%. We revise our estimates for
FY12E/13E by – 7% to -8% mainly on lower margin assumptions . Our
revised FY12E EPS is 20% below Bloomberg consensus estimates.
What to do with the stock
We retain our Neutral rating and revise our 12 m P/E based TP price to
Rs52 (from Rs56) on revised estimates. Our Neutral rating is driven by: 1)
We believe low operating margins of this company relative to 2-wheeler
peers (Hero Honda and Bajaj Auto) enhances the risk profile of earnings,
and probability of negative earnings surprises in an environment of
increasing competition or a potential slowdown in growth. 2) Low base of
operations in Indonesia is also likely to be a drag on consolidated returns
on capital in our view, posing incremental risks to valuation. 3) On the
upside, TVS Motor could benefit froma ramp-up of volumes in the higher
margin 3-wheeler business during FY2012-13E, and and we see capacity
constraints at market leaders Honda scooters and Hero Honda motorcycles
during 2011. Key risks: (upside) higher-than-expected margins from 3-
wheeler business;(downside) lower-than-expected capacity constraints at
Honda and Hero Honda, higher-than-expected commodity costs.
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