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November 3, 2011
TVS Motor
Performance Highlights
Y/E March (` cr) Net sales EBITDA EBITDA margin (%) Reported PAT
Source: Company, Angel Research
ACCUMULATE
CMP Target Price
% chg (yoy) 23.2 28.7 29bp 39.7 Angel est. 1,978 128 6.5 67 % diff 0.7 7.8 46bp 13.8
`66 `74
12 Months
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
TVS Motors (TVSL) 2QFY2012 operating results were ahead of our estimates, driven largely by better-than-expected margin performance. Bottom line came in 13.8% ahead of our estimates, led by operating margin expansion and a decline in interest cost. We continue to maintain our volume estimates at 2.3m/2.6mn for FY2012E/13E. However, we revise upwards our margin estimates to factor in the recent price increases (~1% and ~3.5% in domestic and exports markets) and softening commodity prices. We maintain our Accumulate rating on the stock. Net profit ahead of estimates on better-than-expected operating performance: TVSL registered strong 23.2% yoy (14.1% qoq) top-line growth to `1,992cr, in-line with our estimates, led by healthy 15.1% yoy (12.7% qoq) growth in total volumes and strong 6.7% yoy (1.5% qoq) growth in net average realization. The scooters segment continued to drive total volume growth, posting 26.6% yoy (34% qoq) growth, while the motorcycle segment witnessed a healthy 14.2% yoy (11% qoq) increase in volumes. The companys EBITDA margin came in 46bp ahead of our estimates at 6.9%, witnessing an expansion of 29bp yoy (24bp qoq). EBITDA margin expansion was aided by improvement in net average realization and a 120bp yoy savings in other expenditure. However, high raw-material cost (rawmaterial to sales ratio at 75.5% vs. 73.7% in 2QFY2011 and 76.4% in 1QFY2012) restricted further expansion in margins. Led by strong operating performance and lower interest cost, net profit posted better-than-expected growth of 39.7% yoy (30.1% qoq) to `77cr. Outlook and valuation: At `66, TVSL is trading at 10.8x FY2013E earnings. We maintain our Accumulate view on the stock and value it at 12x (20% discount to the multiple of the top two industry players at 15x) FY2013E earnings to arrive at a target price of `74. However, continued investments in subsidiaries are a concern going ahead.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 59.3 21.7 5.0 14.0
3m (4.9) 24.5
1yr 1.1
3yr 69.1
(12.5) 341.1
Key financials
Y/E March (` cr) Net sales % chg Adj. profit % chg Adj. OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
FY2010 4,363 18.9 119.9 306.6 4.2 2.5 26.3 3.6 14.3 4.4 0.8 17.7
FY2011 6,179 41.6 205.9 71.8 6.2 4.3 15.3 3.2 22.1 15.2 0.5 8.3
FY2012E 7,459 20.7 264.5 28.4 6.7 5.6 11.9 2.7 24.5 21.4 0.4 6.0
FY2013E 8,529 14.4 292.5 10.6 6.4 6.2 10.8 2.3 23.0 21.4 0.3 5.2
Yaresh Kothari
022-39357800 Ext: 6844 yareshb.kothari@angelbroking.com
2QFY12 1,992 1,433 72.0 94 4.7 40 2.0 287 14.4 1,854 138 6.9 11 29 2 101 101 5.1 24 24.1 77 3.8 47.5 1.6
2QFY11 1,616 1,143 70.7 85 5.2 29 1.8 252 15.6 1,509 107 6.7 14 28 2 68 68 4.2 13 19.2 55 3.4 47.5 1.2
yoy chg (%) 23.2 25.4 10.7 38.4 13.5 22.9 28.7 (21.6) 2.2 (7.2) 48.8 48.8
1QFY12 1,746 1,272 72.9 91 5.2 32 1.8 234 13.4 1,629 117 6.7 12 28 0 78 78 4.5 19 24.5
qoq chg (%) 14.1 12.6 3.2 24.2 22.7 13.8 18.1 (3.7) 3.3 11,450 29.5 29.5 27.8 (1.4) 30.1
1HFY12 3,738 2,706 72.4 185 4.9 72 1.9 520 13.9 3,482 255 6.8 23 56 2 179 179 4.8 43 24.3 135 3.6 47.5
1HFY11 3,009 2,138 71.1 158 5.2 47 1.6 469 15.6 2,812 197 6.6 31 55 7 118 118 3.9 23 19.5 95 3.2 47.5 2.0
chg (%) 24.2 26.6 17.2 51.5 10.9 23.8 29.5 (27.1) 3.1 (65.4) 51.2 51.2
39.7
59 3.4 47.5
42.2
39.7
1.2
30.1
2.8
42.2
November 3, 2011
2QFY12 604,208 519,709 84,499 174,877 63,867 238,744 148,344 9,121 157,465 192,859 3,478 196,337 3,629 8,033 11,662
2QFY11 524,954 462,949 62,005 157,216 51,790 209,006 119,028 5,328 124,356 180,294 1,342 181,636 6,411 3,545 9,956
yoy chg 15.1 12.3 36.3 11.2 23.3 14.2 24.6 71.2 26.6 7.0 159.2 8.1 (43.4) 126.6 17.1
1QFY12 536,131 458,329 77,802 155,793 59,258 215,051 109,279 8,244 117,523 190,672 1,461 192,133 2,585 8,839 11,424
qoq chg 12.7 13.4 8.6 12.2 7.8 11.0 35.7 10.6 34.0 1.1 138.1 2.2 40.4 (9.1) 2.1
1HFY12 1,140,339 978,038 162,301 330,670 123,125 453,795 257,623 17,365 274,988 383,531 4,939 388,470 6,214 16,872 23,086
1HFY11 988,794 870,868 117,926 309,430 99,934 409,364 211,223 8,619 219,842 337,882 3,951 341,833 12,333 5,422 17,755
% chg 15.3 12.3 37.6 6.9 23.2 10.9 22.0 101.5 25.1 13.5 25.0 13.6 (49.6) 211.2 30.0
Net sales driven by healthy volume and strong net average realization growth: TVSL registered strong 23.2% yoy (14.1% qoq) growth in its top line to `1,992cr, in-line with our estimates, led by healthy 15.1% yoy (12.7% qoq) growth in total volumes and strong 6.7% yoy (1.5% qoq) growth in net average realization. The scooters segment continued to drive total volume growth, posting 26.6% yoy (34% qoq) growth, while the motorcycle segment witnessed a healthy 14.2% yoy (11% qoq) increase in volumes. The three-wheeler segment registered 17.1% yoy growth (2.1% qoq) during the quarter. Exports volume sustained its strong growth traction, reporting 36.3% yoy (8.6% qoq) growth. Improvement in net average realization can be attributed to price increases (average price hike of ~1.5% in July 2011) and superior product mix (higher proportion of scooters to total sales).
Total volume
(%) 45.0 40.0 35.0 30.0 25.0 20.0 15.0 15.1 10.0 5.0 0.0
(%) 9.0 8.0 7.0 6.7 6.0 5.0 4.0 3.0 2.0 1.0 0.0
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
November 3, 2011
2QFY12
(%) 25 20
15.2 23.5
Scooters Three Wheelers 20.8 14.2 19.6 14.7 7.3 21.6 23.7
Motor Cycles Total Two Wheelers 21.2 14.7 20.5 14.3 15.2 22.8
17.7 13.8
15 10 5 0
2.6 6.8
15.4
15.4
20.0 10.0
6.2
6.6
7.1
6.9
6.8
6.3
6.8
0.0
2.5
4.5
5.6
4.5
3.7
3.5
2.3
2.6
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY2012 came in 46bp ahead of our estimates at 6.9% (up 29bp yoy and 24bp qoq). EBITDA margin expansion was aided by improvement in net average realization and a 120bp yoy savings in other expenditure. Employee cost as a percentage of sales also declined by 52bp yoy, thus aiding margin expansion. However, further margin expansion was arrested by higher raw-material costs raw material/sales ratio stood at 75.5% in 2QFY2012 vs. 73.7% in 2QFY2011 and 76.4% in 1QFY2012. Sequentially though, raw-material costs witnessed a correction as commodity prices have come down. Exhibit 7: EBITDA margin improves marginally to 6.9%
(%) 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 EBITDA margin 71.8 71.6 70.0 74.0 Raw material cost/sales 73.7 74.7 74.4 76.4 75.5
(%) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
5.5
6.4
6.5
6.4
6.7
6.1
5.6
6.7
6.9
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
Net profit beats estimates on better-than-expected operating performance and lower interest cost: TVSL reported better-than-expected net profit growth of 39.7% yoy (30.1% qoq) to `77cr due to improved operating performance and lower interest expense. Lower-than-expected other income (down 7.2% yoy) and higher tax rate (24.1% as against 19.2% in 2QFY2011), however, arrested further growth in profitability during the quarter.
November 3, 2011
2QFY12
2QFY12
Key highlights
Management expects the two-wheeler industry to grow by 12-15% in FY2012. It is confident of achieving volume growth guidance of 15% for the current fiscal year. TVSL has a current capacity of 3mn two-wheelers and 50,000 three-wheelers. The company expects its EBITDA margin to improve in 2HFY2012 on softening commodity prices. TVSL hiked prices by ~1% in November 2011 in the domestic markets and by ~3.5% in October 2011 in the exports markets. During the quarter, the company invested `24.9cr in Sundaram Auto Components, `23.1cr in TVS Motor Services, `15cr in TVS Energy and `13.91cr in PT TVS Motor Company Indonesia.
Investment arguments
Healthy volume growth on success of new launches: TVSL posted healthy performance in FY2011, aided by overall volume recovery, improved product mix and benefits of operating leverage. New product launches such as Jive, Wego and Max4R helped TVSL to report strong performance. We expect the new launches to enable TVSL to ramp up its monthly run rate of two-wheelers and post annual volumes of 2.3mn and 2.6mn units in FY2012E and FY2013E, respectively, from 2mn units in FY2011. Improving product mix to sustain operating margins: Higher contribution of three-wheelers to total volumes coupled with the recent trend of softening commodity prices would help the company sustain its margin at around 6.5% in FY2012 and FY2013. However, we believe the overall scenario will remain challenging for the company in terms of intensifying competition. Consolidated earnings back in black: TVSLs consolidated performance was impacted by poor performance of its Indonesian subsidiary. The facility in Indonesia was started in FY2007 with an initial investment of ~`200cr. On a cumulative basis, TVSM invested around `270cr until FY2010. After the facility started, the economic slowdown extended the gestation period for TVSL in the Indonesian market. However, the expected recovery in the overseas market will help the company improve its consolidated performance. TVSL recorded a robust 42% yoy jump in its consolidated net sales to `6,544cr (`4,611cr) for FY2011 and its net profit stood at `128cr as against `34cr for FY2010.
November 3, 2011
We estimate TVSL to post a CAGR of 17.5% in its top line and 19.2% in its net profit over FY201113E, aided by a ~13% CAGR in volume and improving operating performance due to the change in product mix and better operating leverage. Thus, we expect TVSL to register EPS of `5.6 in FY2012 and `6.2 in FY2013. At `66, TVSL is trading at 10.8x FY2013E earnings. We maintain our Accumulate view on the stock and value it at 12x (20% discount to the multiple of the top two industry players at 15x) FY2013E earnings to arrive at a target price of `74. However, continued investments in subsidiaries are a concern going ahead.
FY08 1,273,602 597,757 264,508 411,209 128 (16.7) (35.4) 2.1 19.3 1,136,395 137,207
FY09 1,321,534 634,918 246,153 435,589 4,874 3.8 6.2 (6.9) 5.9 3,707.8 1,128,136 193,398
FY10 1,536,895 640,965 309,501 571,563 14,866 16.3 1.0 25.7 31.2 205.0 1,371,481 165,414
FY11 2,046,731 836,821 466,264 703,717 39,929 33.2 30.6 50.7 23.1 168.6 1,812,320 234,411
FY12E 2,332,082 920,503 573,505 788,163 49,911 13.9 10.0 23.0 12.0 25.0 2,063,893 268,189
FY13E 2,589,123 997,825 665,265 870,132 55,901 11.0 8.4 16.0 10.4 12.0 2,291,374 297,749
November 3, 2011
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Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 1,791 774 1,016 27 339 775 4 278 493 567 208 53 1,643 1,865 869 996 40 478 894 42 350 502 619 275 75 1,864 1,909 953 956 27 739 965 101 354 511 734 231 30 1,983 1,972 1,035 938 57 661 1,202 6 397 799 1,073 129 1,785 2,083 1,149 934 52 691 1,487 132 522 833 1,244 243 1,920 2,173 1,269 904 54 751 1,843 293 597 953 1,407 436 2,146 24 798 822 666 155 1,643 24 786 810 906 148 1,864 24 842 865 1,003 115 1,983 48 952 999 785 1,785 48 1,112 1,160 760 1,920 48 1,338 1,385 760 2,146 FY08 FY09 FY10 FY11 FY12E FY13E
November 3, 2011
November 3, 2011
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Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover Inventory / Sales (days) Receivables (days) Payables (days) WC (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage 0.4 3.4 0.5 2.1 1.3 0.2 0.9 1.1 0.1 0.3 4.1 (0.1) (0.1) 7.4 (0.2) (0.5) 7.6 2.0 45 11 61 17 2.0 36 13 53 21 2.3 26 17 51 15 3.2 24 15 49 7 3.7 26 14 51 6 4.1 26 14 51 5 0.1 0.1 0.4 4.8 4.6 3.6 4.4 4.5 14.3 15.2 16.0 22.1 21.4 22.1 24.5 21.4 23.5 23.0 0.0 0.9 2.1 0.1 1.7 0.3 (0.4) 2.3 1.0 2.2 4.9 8.2 0.4 3.5 1.9 1.3 2.4 5.9 10.0 0.3 4.6 4.6 0.8 3.4 12.6 6.2 0.2 13.6 5.3 0.7 4.3 17.0 5.2 0.0 17.3 5.1 0.8 4.8 18.2 5.6 (0.1) 16.5 0.7 0.1 2.7 0.4 17.3 0.7 0.6 2.8 0.4 17.1 1.9 2.5 4.7 0.6 18.2 4.1 4.3 6.6 1.1 21.0 5.6 5.6 8.0 1.2 24.4 6.2 6.2 8.7 1.2 29.2 1,039 24.9 3.8 0.5 1.1 36.3 2.1 106.8 23.5 3.9 0.5 1.0 18.9 1.9 26.3 14.2 3.6 0.9 0.8 17.7 1.7 15.3 10.1 3.2 1.7 0.5 8.3 1.8 11.9 8.3 2.7 1.8 0.4 6.0 1.6 10.8 7.6 2.3 1.8 0.3 5.2 1.3 FY08 FY09 FY10 FY11 FY12E FY13E
November 3, 2011
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E-mail: research@angelbroking.com
Website: www.angelbroking.com
DISCLAIMER
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
TVS Motor No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
November 3, 2011
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