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UBS Investment Research
TVS Motor Company Ltd.
P ositive catalysts ahead
Event: Positive catalysts ahead
TVS reported strong Sept. vol. growth of 17% yoy led by scooters and exports vol.
growth of 30% & 27% yoy. We believe continued strength in volume growth in
festive season and strong Q2FY12 results (primarily due to softening of
commodity prices and operating leverage) will be key driver of stock price
performance in near term. Lower losses in Indonesia, favourable mix and
increasing scale are key catalysts for earnings growth in next two years.
Impact: raise EPS estimate by 10%/13% in FY12/13
We revise our volume estimates in line with company’s ytd performance resulting
in increase in proportion of 3W and exports in total volumes to 3.0%/3.7% and
14.7%/16.1% in FY12/13 from prior estimate of 2.5%/2.8% and
13.9%/14.7%.resp. We lower losses in Indonesian operations in FY12/13 to
Rs628m/Rs.491m from Rs.899m/Rs.801m. Higher than expected export incentive
rate of 5.5% also contributes to earning upgrades.
Action: Reiterate Buy, raise price target to Rs.80
We raise PT to Rs.80 (from Rs.70) in order to reflect better earnings outlook (we
expect EBITDA margin increase of 120bps and EPS CAGR of 54% over FY11-
13). High competitive intensity in domestic and Indonesian market remains a key
overhang.
Valuation: attractive at 5.2x EV/EBITDA FY13E
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. At our price target, the
stock’s implied valuation would be 12.4x FY13E PE
Reiterate Buy
We reiterate Buy and raise PT to Rs.80 in order to reflect better earnings outlook.
We increase our earnings estimate for FY12/13 by 10%/13% respectively
mainly to reflect
1. lower losses in Indonesian operations in FY12/13 to Rs628m/Rs.491m
from Rs.899m/Rs.801m (although we maintain it is unlikely that
company will be able to achieve cash breakeven by FY13)
2. favourable mix-We revise our volume estimates in line with company’s
ytd performance resulting in increase in proportion of 3W and exports
in total volumes to 3.0%/3.7% and 14.7%/16.1% in FY12/13 from prior
estimate of 2.5%/2.8% and 13.9%/14.7%.resp.
3. higher than expected rate of export incentives (replacing DEPB) at
5.5% (versus our estimate of 3%).
Valuation remains compelling
TVS is trading at significant discount of ~40% to its peers on EV/EBITDA
FY13E despite expectation of superior earnings growth (mainly due to low base).
We expect 60% and 49% EPS growth in FY12 and FY13, compared with
18%/20% for Hero Honda and 7%/7% for Bajaj Auto.
We believe current level of discount is not justified and stock should re-rate
from current levels following continued strength in scooter and motorcycles and
recovery in mopeds volume growth in festive season and sequentially strong
Q2FY12 (primarily due to softening of commodity prices and operating
leverage).
Volume mix to improve
We revise downwards our domestic volume growth assumption (primarily
moped and 3W) to reflect company’s ytd performance.
— We decrease domestic moped volume growth estimate to 12%/10% in
FY12/13 (from 18%/15%). Company has reported ytd moped volume
growth of 13%.
— We decrease domestic 3W volume growth estimate to -20% in FY12
(from 0%). We maintain our FY13 estimate at 15%. Ytd, company has
reported domestic 3W volume growth of -53%. We expect volume
growth to recover with opening up of new permits in Tamil Nadu,
Karnataka and West Bengal markets.
— We increase 3W exports volume growth estimate to 200%/50% in
FY12/13 (from 120%/40%). Company has reported ytd volume growth of
245%.
We believe our volume estimates capture growing competitive intensity in the
2W space primarily in scooters and TVS’s comparatively weaker product
portfolio in motorcycles segment. New product launches (potentially in FY13)
presents upside risk to our volume estimates.
The above revision in volume estimates results in overall mix improvement with
share of 3W and exports rising in proportion of total volumes.
TVS Motor Company Ltd.
TVS Motor is India's third-largest two-wheeler company by volume. It has a
presence in all the product categories including mopeds (25% of two-wheeler
sales), where it has a 100% market share. TVS also has a strong position in the
scooter segment (22%); and motorcycles form the rest of its two-wheeler sales
(54%). TVS entered the three-wheeler (passenger) segment in FY08 and has
gained an around 5% market share. Exports and auto component sales constitute
about 11% and 15% of its total consolidated sales, respectively.
Statement of Risk
The principal risks to our earnings estimates for auto companies are fluctuations
in sales volumes and raw material prices. Also demand is linked to various
factors including the economic growth rate and interest rates and this could
affect a company’s operations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
TVS Motor Company Ltd.
P ositive catalysts ahead
Event: Positive catalysts ahead
TVS reported strong Sept. vol. growth of 17% yoy led by scooters and exports vol.
growth of 30% & 27% yoy. We believe continued strength in volume growth in
festive season and strong Q2FY12 results (primarily due to softening of
commodity prices and operating leverage) will be key driver of stock price
performance in near term. Lower losses in Indonesia, favourable mix and
increasing scale are key catalysts for earnings growth in next two years.
Impact: raise EPS estimate by 10%/13% in FY12/13
We revise our volume estimates in line with company’s ytd performance resulting
in increase in proportion of 3W and exports in total volumes to 3.0%/3.7% and
14.7%/16.1% in FY12/13 from prior estimate of 2.5%/2.8% and
13.9%/14.7%.resp. We lower losses in Indonesian operations in FY12/13 to
Rs628m/Rs.491m from Rs.899m/Rs.801m. Higher than expected export incentive
rate of 5.5% also contributes to earning upgrades.
Action: Reiterate Buy, raise price target to Rs.80
We raise PT to Rs.80 (from Rs.70) in order to reflect better earnings outlook (we
expect EBITDA margin increase of 120bps and EPS CAGR of 54% over FY11-
13). High competitive intensity in domestic and Indonesian market remains a key
overhang.
Valuation: attractive at 5.2x EV/EBITDA FY13E
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. At our price target, the
stock’s implied valuation would be 12.4x FY13E PE
Reiterate Buy
We reiterate Buy and raise PT to Rs.80 in order to reflect better earnings outlook.
We increase our earnings estimate for FY12/13 by 10%/13% respectively
mainly to reflect
1. lower losses in Indonesian operations in FY12/13 to Rs628m/Rs.491m
from Rs.899m/Rs.801m (although we maintain it is unlikely that
company will be able to achieve cash breakeven by FY13)
2. favourable mix-We revise our volume estimates in line with company’s
ytd performance resulting in increase in proportion of 3W and exports
in total volumes to 3.0%/3.7% and 14.7%/16.1% in FY12/13 from prior
estimate of 2.5%/2.8% and 13.9%/14.7%.resp.
3. higher than expected rate of export incentives (replacing DEPB) at
5.5% (versus our estimate of 3%).
Valuation remains compelling
TVS is trading at significant discount of ~40% to its peers on EV/EBITDA
FY13E despite expectation of superior earnings growth (mainly due to low base).
We expect 60% and 49% EPS growth in FY12 and FY13, compared with
18%/20% for Hero Honda and 7%/7% for Bajaj Auto.
We believe current level of discount is not justified and stock should re-rate
from current levels following continued strength in scooter and motorcycles and
recovery in mopeds volume growth in festive season and sequentially strong
Q2FY12 (primarily due to softening of commodity prices and operating
leverage).
Volume mix to improve
We revise downwards our domestic volume growth assumption (primarily
moped and 3W) to reflect company’s ytd performance.
— We decrease domestic moped volume growth estimate to 12%/10% in
FY12/13 (from 18%/15%). Company has reported ytd moped volume
growth of 13%.
— We decrease domestic 3W volume growth estimate to -20% in FY12
(from 0%). We maintain our FY13 estimate at 15%. Ytd, company has
reported domestic 3W volume growth of -53%. We expect volume
growth to recover with opening up of new permits in Tamil Nadu,
Karnataka and West Bengal markets.
— We increase 3W exports volume growth estimate to 200%/50% in
FY12/13 (from 120%/40%). Company has reported ytd volume growth of
245%.
We believe our volume estimates capture growing competitive intensity in the
2W space primarily in scooters and TVS’s comparatively weaker product
portfolio in motorcycles segment. New product launches (potentially in FY13)
presents upside risk to our volume estimates.
The above revision in volume estimates results in overall mix improvement with
share of 3W and exports rising in proportion of total volumes.
TVS Motor Company Ltd.
TVS Motor is India's third-largest two-wheeler company by volume. It has a
presence in all the product categories including mopeds (25% of two-wheeler
sales), where it has a 100% market share. TVS also has a strong position in the
scooter segment (22%); and motorcycles form the rest of its two-wheeler sales
(54%). TVS entered the three-wheeler (passenger) segment in FY08 and has
gained an around 5% market share. Exports and auto component sales constitute
about 11% and 15% of its total consolidated sales, respectively.
Statement of Risk
The principal risks to our earnings estimates for auto companies are fluctuations
in sales volumes and raw material prices. Also demand is linked to various
factors including the economic growth rate and interest rates and this could
affect a company’s operations.
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