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Overreaction to weak results, good time to BUY
•
Earnings vs. our Forecast:
BELOW
Likely Impact:
•
Earnings Estimates:
NO CHANGE
•
Dividend Estimates:
NO CHANGE
•
Price Target:
NO CHANGE
•
Long-term View:
CONFIRMED
The Adjustments
1) TVS Motors indicated that it had to make provisions for National Calamity Contingency Duty (NCCD) of INR100mn. This pertains to FY10 and FY11 and was netted off from Net Sales. On a run-rate basis, this amount is expected to be INR60m per year, and we will make adjustments to our estimates for the same in the future. We note that NCCD is under dispute and this is only a provision at this stage. Bajaj Auto (BJAUT IN, INR1,477.7, BUY) may also be impacted by this at some point in future although the impact is expected to be limited.
2) The company also indicated that it was an able to receive a certificate of exports for 10,000 units of sales in the current quarter. Hence it could not bill these units, impacting INR300mn of sales and INR27mn of export incentives.
3) There were certain tax provisions disallowed during the quarter (INR60m) leading to a sharp increase in the tax rate from 20% to 34%.TVSL has guided for a tax rate of 23-25% for FY12F. We have built in a tax rate of 23% for FY12F.
Other details from the management
· The company plans to make two new launches in the two-wheeler space in H2 FY12, one in the mid segment motorcycle space, and one in the scooter space.
· TVSL ended the year with capex of INR1.3bn. It plans capex of INR1.75b in FY12F to increase capacity from 2.8mn units to 3mn+ units in FY12F.
· The company invested INR1.75bn in TVS Motor Services (Financing Arm) during FY11. That is financing 5,000 units per month currently and the plan is to increase it to 15,000 units per month.
· The company sold 20,000 units in Indonesia in FY11. It will take one more year for breakeven of operations there. That will be with the help of an increased number of dealerships from 150 currently to 300. The break-even sales would be 60,000 units in our view. In FY11, TVSL invested INR600mn in Indonesia.
· The company also invested INR14mn in the wind energy arm in FY11. This is a 25MW plant and will supply the company from FY12 as well as sell power to the grid.
· The company expects the industry to grow at 15% per annum and itself to outgrow the industry and gain market
share. We are building in volume growth of 8% currently.
· The company currently has INR8bn of interest-bearing loans and expects to be debt free in two years.
· The company has increased prices by 1.5% from April 2011. We expect the company to maintain margins with this price increase.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Overreaction to weak results, good time to BUY
•
Earnings vs. our Forecast:
BELOW
Likely Impact:
•
Earnings Estimates:
NO CHANGE
•
Dividend Estimates:
NO CHANGE
•
Price Target:
NO CHANGE
•
Long-term View:
CONFIRMED
The Adjustments
1) TVS Motors indicated that it had to make provisions for National Calamity Contingency Duty (NCCD) of INR100mn. This pertains to FY10 and FY11 and was netted off from Net Sales. On a run-rate basis, this amount is expected to be INR60m per year, and we will make adjustments to our estimates for the same in the future. We note that NCCD is under dispute and this is only a provision at this stage. Bajaj Auto (BJAUT IN, INR1,477.7, BUY) may also be impacted by this at some point in future although the impact is expected to be limited.
2) The company also indicated that it was an able to receive a certificate of exports for 10,000 units of sales in the current quarter. Hence it could not bill these units, impacting INR300mn of sales and INR27mn of export incentives.
3) There were certain tax provisions disallowed during the quarter (INR60m) leading to a sharp increase in the tax rate from 20% to 34%.TVSL has guided for a tax rate of 23-25% for FY12F. We have built in a tax rate of 23% for FY12F.
Other details from the management
· The company plans to make two new launches in the two-wheeler space in H2 FY12, one in the mid segment motorcycle space, and one in the scooter space.
· TVSL ended the year with capex of INR1.3bn. It plans capex of INR1.75b in FY12F to increase capacity from 2.8mn units to 3mn+ units in FY12F.
· The company invested INR1.75bn in TVS Motor Services (Financing Arm) during FY11. That is financing 5,000 units per month currently and the plan is to increase it to 15,000 units per month.
· The company sold 20,000 units in Indonesia in FY11. It will take one more year for breakeven of operations there. That will be with the help of an increased number of dealerships from 150 currently to 300. The break-even sales would be 60,000 units in our view. In FY11, TVSL invested INR600mn in Indonesia.
· The company also invested INR14mn in the wind energy arm in FY11. This is a 25MW plant and will supply the company from FY12 as well as sell power to the grid.
· The company expects the industry to grow at 15% per annum and itself to outgrow the industry and gain market
share. We are building in volume growth of 8% currently.
· The company currently has INR8bn of interest-bearing loans and expects to be debt free in two years.
· The company has increased prices by 1.5% from April 2011. We expect the company to maintain margins with this price increase.
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