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TVS MOTORS LTD (TVSM)
PRICE: RS.59 RECOMMENDATION: BUY
TARGET PRICE: RS.70 FY12E P/E: 11.2
q 2W demand during the current financial year have been strong despite
slowdown been witnessed in other automotive segments.
q TVS Motors FY12 YTD volume growth stands at 15%. Growth in volumes
for the company is spread across segments and geographies.
q In 1QFY12, the operating margins showed improvement over 4QFY11.
Healthy volumes and marginal softness in commodity prices should be
positive for the company's operating margins, going forward.
q Slow volume pick-up in the Indonesian subsidiary remains a concern for
the company.
q On the valuations front, the stock is available at significant discount to
Hero MotoCorp and Bajaj Auto. Based on FY12 standalone earnings,
TVSM is trading at a PE multiple of 11.2x as compared to 16.4x for Bajaj
Auto and 19.2x for Hero MotoCorp.
q We continue to retain our BUY rating on the stock with an unchanged
price target of Rs70 (valuing the company at a PE of 13.5x).
2W segment remains least impacted in the current slowdown
n 2W segment have easily outperformed most of the other segments within the
automobile industry.
n In our view, slowdown in the auto segment (primarily the passenger car and the
M&HCV segment) has happened on the following counts - 1.Slowing economy
2.Rising fuel prices and 3.Rise in cost of financing.
n However, the impact of the above mentioned macro factors on the 2W space
have been limited because of 1.High 2W sales exposure to rural India 2.Twowheelers
being highly fuel efficient have remained least impacted on account of
steep rise in petrol price and 3.Amongst various segments within the auto sector,
the 2W segment has least exposure to credit sales and therefore the impact of
rise in interest rates on the volumes have been limited. Strong export demand
too has contributed to volumes.
n We therefore expect 2W sales in FY12 to remain healthy. However, the growth
rate could be slightly lower than that witnessed during the first 5 months of FY12
as 1.Base increases going ahead 2.Prolonged slowness in economy to have some
impact on 2W sales and 3.Expected moderation in export volumes post replacement
of the DEPB scheme.
Expect 13% volume growth for TVSM in FY12
n After registering a 33% volume growth in FY11, we expect the company's volumes
in FY12 to grow by 13% which is broadly in line with the 2W industry
growth rate expectation of 13-15%.
n For TVSM, we believe that the scooter segment and exports will remain the key
volume driver in FY12.
n Demand for scooters has seen a sharp improvement and the company is benefitting
from the same with their Scooty and Jive brands
n In the motorcycle space, the company's performance has been steady in the
economy and the premium segment. However, the absence of a strong brand in
the executive segment has been limiting the company's performance in the motorcycle
segment.
n TVSM continues to dominate the moped segment and the volumes in this segment
is witnessing steady growth.
n Exports during the current financial year have grown at a strong pace of 30%
(YTD) for the company. Going forward, post expiry of DEPB scheme in September
2011, we expect slight moderation in exports growth volumes.
n Company's YTD volume growth stands at 15% and to achieve our full year volume
growth expectation of 13%, the volumes need to grow at 12% over the
balance part of FY12, which in our view should not be a difficult task.
Operating margins have scope for improvement
n TVSM's operating margin is quite low as compared to that of its peers like Hero
MotoCorp and Bajaj Auto due to relatively inferior product mix. However over
the past few quarters, product mix has improved.
n Operating margins in 1QFY12 were reasonably strong for the company. Correction
in commodity prices coupled with robust volumes should have a positive
impact on the company's operating margins in FY12.
Outlook and Valuations
n Volume growth outlook for the 2W industry remains positive. New product
launches slated towards the end of the FY12/early FY13 should help the company
carry on with the growth momentum into the next financial year.
n Karnataka Court order to open up 40,000 permits is a positive for the 3W sales
over the next couple of quarters.
n Delay in turnaround of the Indonesian subsidiary remains a concern for the company.
n On the valuations front, the stock is available at significant discount to Hero
MotoCorp and Bajaj Auto which is justified to certain extent because of 1.Lower
margins 2.relatively smaller operation size and 3.Delay in turnaround of the Indonesian
subsidiary.
n Based on FY12 standalone earnings, TVSM is trading at a PE multiple of 11.2x as
compared to 16.4x for Bajaj Auto and 19.2x for Hero MotoCorp.
n We continue to retain our BUY rating on the stock with an unchanged price target
of Rs70 (valuing the company at a PE of 13.5x).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TVS MOTORS LTD (TVSM)
PRICE: RS.59 RECOMMENDATION: BUY
TARGET PRICE: RS.70 FY12E P/E: 11.2
q 2W demand during the current financial year have been strong despite
slowdown been witnessed in other automotive segments.
q TVS Motors FY12 YTD volume growth stands at 15%. Growth in volumes
for the company is spread across segments and geographies.
q In 1QFY12, the operating margins showed improvement over 4QFY11.
Healthy volumes and marginal softness in commodity prices should be
positive for the company's operating margins, going forward.
q Slow volume pick-up in the Indonesian subsidiary remains a concern for
the company.
q On the valuations front, the stock is available at significant discount to
Hero MotoCorp and Bajaj Auto. Based on FY12 standalone earnings,
TVSM is trading at a PE multiple of 11.2x as compared to 16.4x for Bajaj
Auto and 19.2x for Hero MotoCorp.
q We continue to retain our BUY rating on the stock with an unchanged
price target of Rs70 (valuing the company at a PE of 13.5x).
2W segment remains least impacted in the current slowdown
n 2W segment have easily outperformed most of the other segments within the
automobile industry.
n In our view, slowdown in the auto segment (primarily the passenger car and the
M&HCV segment) has happened on the following counts - 1.Slowing economy
2.Rising fuel prices and 3.Rise in cost of financing.
n However, the impact of the above mentioned macro factors on the 2W space
have been limited because of 1.High 2W sales exposure to rural India 2.Twowheelers
being highly fuel efficient have remained least impacted on account of
steep rise in petrol price and 3.Amongst various segments within the auto sector,
the 2W segment has least exposure to credit sales and therefore the impact of
rise in interest rates on the volumes have been limited. Strong export demand
too has contributed to volumes.
n We therefore expect 2W sales in FY12 to remain healthy. However, the growth
rate could be slightly lower than that witnessed during the first 5 months of FY12
as 1.Base increases going ahead 2.Prolonged slowness in economy to have some
impact on 2W sales and 3.Expected moderation in export volumes post replacement
of the DEPB scheme.
Expect 13% volume growth for TVSM in FY12
n After registering a 33% volume growth in FY11, we expect the company's volumes
in FY12 to grow by 13% which is broadly in line with the 2W industry
growth rate expectation of 13-15%.
n For TVSM, we believe that the scooter segment and exports will remain the key
volume driver in FY12.
n Demand for scooters has seen a sharp improvement and the company is benefitting
from the same with their Scooty and Jive brands
n In the motorcycle space, the company's performance has been steady in the
economy and the premium segment. However, the absence of a strong brand in
the executive segment has been limiting the company's performance in the motorcycle
segment.
n TVSM continues to dominate the moped segment and the volumes in this segment
is witnessing steady growth.
n Exports during the current financial year have grown at a strong pace of 30%
(YTD) for the company. Going forward, post expiry of DEPB scheme in September
2011, we expect slight moderation in exports growth volumes.
n Company's YTD volume growth stands at 15% and to achieve our full year volume
growth expectation of 13%, the volumes need to grow at 12% over the
balance part of FY12, which in our view should not be a difficult task.
Operating margins have scope for improvement
n TVSM's operating margin is quite low as compared to that of its peers like Hero
MotoCorp and Bajaj Auto due to relatively inferior product mix. However over
the past few quarters, product mix has improved.
n Operating margins in 1QFY12 were reasonably strong for the company. Correction
in commodity prices coupled with robust volumes should have a positive
impact on the company's operating margins in FY12.
Outlook and Valuations
n Volume growth outlook for the 2W industry remains positive. New product
launches slated towards the end of the FY12/early FY13 should help the company
carry on with the growth momentum into the next financial year.
n Karnataka Court order to open up 40,000 permits is a positive for the 3W sales
over the next couple of quarters.
n Delay in turnaround of the Indonesian subsidiary remains a concern for the company.
n On the valuations front, the stock is available at significant discount to Hero
MotoCorp and Bajaj Auto which is justified to certain extent because of 1.Lower
margins 2.relatively smaller operation size and 3.Delay in turnaround of the Indonesian
subsidiary.
n Based on FY12 standalone earnings, TVSM is trading at a PE multiple of 11.2x as
compared to 16.4x for Bajaj Auto and 19.2x for Hero MotoCorp.
n We continue to retain our BUY rating on the stock with an unchanged price target
of Rs70 (valuing the company at a PE of 13.5x).
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