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TVS Srichakra Ltd. (TVSSL), a part of TVS Group, is a leading manufacturer of two
and three-wheeler tyres with a 25% market share. Two-wheeler demand growth
(~16% yoy YTD) continues to be insulated from the current slowdown in the
automobile sector. Given this growth and increased installed capacity of
automotive tyres by 170% to 3.3cr units over FY2009-11, TVSSL’s volume is
expected to grow at a CAGR of 11% over FY2011-13E. Also, the promoters have
increased their stake in the company from 39.5% in June 2007 to 44.4% in June
2011, demonstrating their confidence in the company’s future growth outlook.
We recommend Buy on TVSSL with a target price of `468, based on a target PE of
5x for FY2013E.
Investment rationale
Better performance of two-wheeler sales to drive the company’s volume
Two-wheeler domestic sales have witnessed growth of ~16% yoy YTD. Being into
the manufacturing of two and three-wheeler tyres, TVSSL is not much exposed to
the risks of demand slowdown, as the two-wheeler segment continues to be
insulated from the current slowdown in the automobile sector and is expected to
grow at a CAGR of 13% over FY2011-13E. Backed by this and increased capacity
utilisation, we expect the company’s volume to grow at a CAGR of 11% over
FY2011-13.
Increase in capacity utilisation to drive operating leverage
TVSSL has increased its installed capacity of automotive tyres by 170% to 3.3cr
units over FY2009-11. This capacity increase is expected to drive the operating
leverage for the company. However, capacity utilisation is only 48% (as of March
2011), which is expected to increase to 59% over FY2011–13E.
Increase in promoters’ stake – A positive for the company
The company’s promoters have increased their share from 39.5% in June 2007 to
44.4% in June 2011. This consistent increase in their share in the company is a
good signal for investors, as it demonstrates the confidence of promoters in the
company’s future growth outlook.
Outlook and valuation
At `355, the stock is trading at 4.8x and 3.8x its FY2012E and FY2013E earnings,
respectively. We expect the company’s revenue and profit to witness CAGRs of
22% and 35%, respectively, on the back of the expected increase in capacity
utilisation, which will result in an 11% CAGR in volumes over FY2011–13E.
We recommend Buy on TVSSL with a target PE of 5x for FY2013E and a target
price of `468 for an investment period of 12 months
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TVS Srichakra Ltd. (TVSSL), a part of TVS Group, is a leading manufacturer of two
and three-wheeler tyres with a 25% market share. Two-wheeler demand growth
(~16% yoy YTD) continues to be insulated from the current slowdown in the
automobile sector. Given this growth and increased installed capacity of
automotive tyres by 170% to 3.3cr units over FY2009-11, TVSSL’s volume is
expected to grow at a CAGR of 11% over FY2011-13E. Also, the promoters have
increased their stake in the company from 39.5% in June 2007 to 44.4% in June
2011, demonstrating their confidence in the company’s future growth outlook.
We recommend Buy on TVSSL with a target price of `468, based on a target PE of
5x for FY2013E.
Investment rationale
Better performance of two-wheeler sales to drive the company’s volume
Two-wheeler domestic sales have witnessed growth of ~16% yoy YTD. Being into
the manufacturing of two and three-wheeler tyres, TVSSL is not much exposed to
the risks of demand slowdown, as the two-wheeler segment continues to be
insulated from the current slowdown in the automobile sector and is expected to
grow at a CAGR of 13% over FY2011-13E. Backed by this and increased capacity
utilisation, we expect the company’s volume to grow at a CAGR of 11% over
FY2011-13.
Increase in capacity utilisation to drive operating leverage
TVSSL has increased its installed capacity of automotive tyres by 170% to 3.3cr
units over FY2009-11. This capacity increase is expected to drive the operating
leverage for the company. However, capacity utilisation is only 48% (as of March
2011), which is expected to increase to 59% over FY2011–13E.
Increase in promoters’ stake – A positive for the company
The company’s promoters have increased their share from 39.5% in June 2007 to
44.4% in June 2011. This consistent increase in their share in the company is a
good signal for investors, as it demonstrates the confidence of promoters in the
company’s future growth outlook.
Outlook and valuation
At `355, the stock is trading at 4.8x and 3.8x its FY2012E and FY2013E earnings,
respectively. We expect the company’s revenue and profit to witness CAGRs of
22% and 35%, respectively, on the back of the expected increase in capacity
utilisation, which will result in an 11% CAGR in volumes over FY2011–13E.
We recommend Buy on TVSSL with a target PE of 5x for FY2013E and a target
price of `468 for an investment period of 12 months
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