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TVS Motor: Strong momentum continues - Views on News from Equitymaster

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TVS Motor: Strong momentum continues
Jan 20, 2011

TVS Motor announced its results for the quarter ended December 2010. The company's revenues grew by 50% YoY, while profits surged by 138% YoY. Here is our analysis of the results.

Performance summary
  • Revenues increase by 50% YoY during the quarter. Total two-wheeler volumes stand at about 518,000 units, which is higher by about 39% YoY.
  • Operating margins contract by 1% YoY on the back of higher raw material costs (as a percentage of sales).
  • Profits rise by a whopping 137% YoY on the back of a 133% YoY rise in other income, coupled with lower interest expenses as well as a marginal increase in depreciation/ amortization costs.
  • During 9mFY11, revenues and profits grow by 45% YoY and 128% YoY respectively.
  • Board declares dividend of Rs 0.5 per share (yield of 0.8%)

Financial performance summary
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 10,726 16,135 50.4% 31,637 45,729 44.5%
Expenditure 10,058 15,295 52.1% 29,687 43,122 45.3%
Operating profit (EBDITA) 669 840 25.6% 1,950 2,606 33.7%
EBDITA margin (%) 6.2% 5.2%   6.2% 5.7%  
Other income 174 404 132.5% 474 970 104.7%
Interest expense/(income) 180    96 -46.7% 505 408 -19.2%
Depreciation/ Amortisation 408 445 9.0% 1,223 1,283 4.9%
Extraordinary items      -     -   
Profit before tax 254 703 176.6% 696 1,885 170.9%
Tax    19 145 677.5%   34 376 1013.0%
Profit after tax/(loss) 235 558 136.8% 662 1,509 127.9%
Net profit margin (%) 2.2% 3.5%   2.1% 3.3%  
No. of shares (m)       237.5 475.1  
Diluted earnings per share (Rs)*          4.6  
Price to earnings ratio (x)*         13.4  
*On trailing 12-month earnings, adjusted for extraordinary items

What has driven performance in 3QFY11?
  • TVS' revenues increased by 50% YoY during the quarter. Growth was led by a 39% YoY increase in total two-wheeler sales. Volumes during the corresponding period last year stood at 372,000 units. As for sales of three-wheelers, the company saw a strong 213% YoY rise in volumes. The company sold over 10,000 units this quarter as compared to about 3,200 units during the quarter ended December 2010. Motorcycles sales volumes formed nearly 41% of the total volumes (same as last year), and grew by 40% YoY. Sales of scooters on the other hand, grew at a faster pace of 63% YoY and contributed to nearly 24% of total sales volumes during the quarter (20% during 3QFY10). Two wheeler exports sales increased by a slower pace of 18% YoY and stood at about 51,400 units.

    Cost break up...
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Raw materials 7,678 12,046 56.9%   22,786   33,900 48.8%
    % sales 71.6% 74.7%   72.0% 74.1%  
    Staff cost    627    868 38.4%     1,736     2,444 40.8%
    % sales 5.8% 5.4%   5.5% 5.3%  
    Other expenditure 1,752 2,381 35.9%     5,165     6,778 31.2%
    % sales 16.3% 14.8%   16.3% 14.8%  
    Total expenses 10,058 15,295     29,687   43,122  

  • TVS' operating profits increased by 26% YoY, a slower pace as compared to the increase in revenues as expenses increased by 52% YoY. Operating margins dropped by 1% YoY to 5.2% on the back of higher raw material expenses (as a percentage of sales). Raw material costs stood at 74.7% of the company's revenues for the quarter as compared to 71.6% last year.

  • TVS' net profits rose by 138% YoY, a much sharper rise as compared to the increase in operating profits. While other income shot up by 133% YoY, lower interest expenses and a marginal 9% YoY increase in depreciation helped in boosting the profits. The growth would have been even higher had it not been for the sharp rise in tax expenses.

  • As for TVS' performance during 9mFY11, the company's revenues and profits increased by 45% YoY and 128% YoY. Operating margins stood at 5.7% as compared to 6.2% last year.

What to expect?
At the current price of Rs 62, the stock trades at a multiple of 13.4 times its trailing twelve month earnings. (ResearchPro subscribers, kindly click here). We will update our research report soon. Till then, we suggest investors to hold on to the stock, considering that it has fallen quite sharply in recent times.

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