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Higher realizations to support margins going forward
Key highlights of the result
Moderate growth in top-line on account of lower volumes: TVS Motor’s top-line
saw a moderate growth of 7.0% yoy to Rs1,762cr in 3QFY2012 due to weak
growth in volumes. TVS Motor’s Motorcycles sales declined 6.6% yoy as the
industry demand slowed down and competition continues to increase. Threewheelers
sales was also subdued (-12.0% yoy) while Scooters volume
continued its growth momentum registering a yoy growth of 11.3%. However,
improvement in realization rates by 6.2% yoy drove the top-line. On a qoq
basis, total revenues were down 11.5% in 3QFY2012.
Margins declined on account of higher other expenses: EBITDA grew 4.4%
yoy to Rs122cr as the growth at top-line was partially offset by increase in
other expenditure. Higher realization and slight decline in raw materials cost
had a positive impact on the EBITDA margin. However, other expenses
increased 16.7% yoy to Rs278cr on account of higher selling and advertising
expenses impacting the margin by ~130bp. Consequently, EBITDA margin
declined ~20bp to 16.9% in 3QFY2012.
Flattish growth in PAT: Company reported a negligible other income of
Rs0.1cr in 3QFY2012 as compared to Rs7cr in 3QFY2011. This coupled with
an increase in effective tax rate resulted in a flattish growth of 1.4% yoy in PAT
to Rs57cr.
Outlook and Valuation
TVS Motor’s volume growth has been lower than market expectations.
Considering the ongoing sluggishness in demand, we expect the company’s
growth to remain moderate in near term. We expect the demand to pick up in
2HCY2012 as we expect the interest rates to ease from April 2012 and positively
impact the demand with a lag of 3-6 months. Thus, we expect the company to
report a healthy volume growth of 12% in FY2013E. We expect the volume growth
to be driven by the success of newly launched products coupled with strong
product pipeline. Further, we expect EBITDA margin to remain stable at ~7.0%
driven by 1) impressive realization rate, 2) cooling raw material prices and 3)
improved product mix. We also expect the interest expenses to come down as the
company starts repaying the debt. This will have positive impact on bottom-line.
Thus, we expect TVS Motors to report a CAGR of 16% and 25% in top-line and
bottom-line respectively during FY2011-FY2013E. At the CMP of Rs54, the stock
is trading at 10.5x and 8.6x FY2012E & FY2013E consolidated EPS of Rs5.2 and
Rs6.4 respectively. Based on our P/E multiple of 10x and FY2013E EPS of Rs6.4
we arrive at a target of Rs64. Thus, we recommend a Buy on the stock.
Risks to the view
Further slowdown in demand if the interest rates persists to remain high
Significant increase in raw material prices
Failure of new products to impact market share
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Higher realizations to support margins going forward
Key highlights of the result
Moderate growth in top-line on account of lower volumes: TVS Motor’s top-line
saw a moderate growth of 7.0% yoy to Rs1,762cr in 3QFY2012 due to weak
growth in volumes. TVS Motor’s Motorcycles sales declined 6.6% yoy as the
industry demand slowed down and competition continues to increase. Threewheelers
sales was also subdued (-12.0% yoy) while Scooters volume
continued its growth momentum registering a yoy growth of 11.3%. However,
improvement in realization rates by 6.2% yoy drove the top-line. On a qoq
basis, total revenues were down 11.5% in 3QFY2012.
Margins declined on account of higher other expenses: EBITDA grew 4.4%
yoy to Rs122cr as the growth at top-line was partially offset by increase in
other expenditure. Higher realization and slight decline in raw materials cost
had a positive impact on the EBITDA margin. However, other expenses
increased 16.7% yoy to Rs278cr on account of higher selling and advertising
expenses impacting the margin by ~130bp. Consequently, EBITDA margin
declined ~20bp to 16.9% in 3QFY2012.
Flattish growth in PAT: Company reported a negligible other income of
Rs0.1cr in 3QFY2012 as compared to Rs7cr in 3QFY2011. This coupled with
an increase in effective tax rate resulted in a flattish growth of 1.4% yoy in PAT
to Rs57cr.
Outlook and Valuation
TVS Motor’s volume growth has been lower than market expectations.
Considering the ongoing sluggishness in demand, we expect the company’s
growth to remain moderate in near term. We expect the demand to pick up in
2HCY2012 as we expect the interest rates to ease from April 2012 and positively
impact the demand with a lag of 3-6 months. Thus, we expect the company to
report a healthy volume growth of 12% in FY2013E. We expect the volume growth
to be driven by the success of newly launched products coupled with strong
product pipeline. Further, we expect EBITDA margin to remain stable at ~7.0%
driven by 1) impressive realization rate, 2) cooling raw material prices and 3)
improved product mix. We also expect the interest expenses to come down as the
company starts repaying the debt. This will have positive impact on bottom-line.
Thus, we expect TVS Motors to report a CAGR of 16% and 25% in top-line and
bottom-line respectively during FY2011-FY2013E. At the CMP of Rs54, the stock
is trading at 10.5x and 8.6x FY2012E & FY2013E consolidated EPS of Rs5.2 and
Rs6.4 respectively. Based on our P/E multiple of 10x and FY2013E EPS of Rs6.4
we arrive at a target of Rs64. Thus, we recommend a Buy on the stock.
Risks to the view
Further slowdown in demand if the interest rates persists to remain high
Significant increase in raw material prices
Failure of new products to impact market share
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