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TVS Motor: Barely afloat - Views on News from Equitymaster
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TVS Motor: Barely afloat
Jan 25, 2008

Performance summary
  • Led by a 7% drop in volumes, topline falls by almost the same rate during the quarter
  • Operating profits falls 49% YoY as operating margins tumble by 150 basis points owing to certain extraordinary expenses

  • A one time profit in the form of sale of land has enabled the company to avoid a loss during the quarter albeit the same has declined by 49% YoY.

  • Nine month performance has been even poorer, with the bottomline shrinking by 59% YoY, on the back of a 19% YoY drop in topline

(Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Units sold 363,675 339,956 -6.5% 1,159,201 983,196 -15.2%
Net sales 9,354 8,750 -6.5% 29,351 24,818 -15.4%
Expenditure 9,058 8,600 -5.1% 28,079 24,176 -13.9%
Operating profit (EBDITA) 296 150 -49.3% 1,272 642 -49.5%
EBDITA margin (%) 3.2% 1.7%   4.3% 2.6%  
Other income 176 211 20.1% 463 572 23.7%
Interest (net) 86 49 -43.0% 208 217 4.6%
Depreciation 245 240 -1.9% 722 719 -0.4%
Profit before tax 141 72 -48.8% 805 278 -65.5%
Extraordinary income/(expense) - -   - 72  
Tax 27 14 -47.5% 230 97 -57.6%
Profit after tax/(loss) 115 58 -49.1% 576 253 -56.1%
Net profit margin (%) 1.2% 0.7%   2.0% 1.0%  
No. of shares (m) 237.5 237.5   237.5 237.5  
Diluted earnings per share (Rs)*         1.4  
Price to earnings ratio (x)*         31.1  
( * on trailing twelve months earnings)

What has driven performance in 3QFY08?
Domestic motorcycles sales, a key contributor to the company’s overall volumes continued to disappoint. Volumes were down 28% YoY much higher than the industry wide decline of 7% YoY. With ‘TVS Flame’ the most awaited product from its stable in recent times mired in controversy, rivals were able to grab some market share from the company during the quarter. The latter were also helped by new launches of their own, which enabled them register some decent sales in what has otherwise been a poor year for the segment.

sales break up
Domestic 3QFY07 3FY08 % change 9mFY07 9mFY08 % change
Motorcycles 201,870 145,706 -27.8% 650,596 390,140 -40.0%
Scooter/scooterette 59,798 62,314 4.2% 191,465 203,264 6.2%
Mopeds 80,069 96,080 20.0% 237,701 291,481 22.6%
Total 341,737 304,100 -11.0% 1,079,762 884,885 -18.0%
Exports            
Motorcycles 18,093 30,452 68.3% 61,516 80,994 31.7%
Scooter/scooterette 1,445 2,939 103.4% 6,734 7,714 14.6%
Mopeds 2,400 2,465 2.7% 11,189 9,603 -14.2%
Total 21,938 35,856 63.4% 79,439 98,311 23.8%
Grand total 363,675 339,956 -6.5% 1,159,201 983,196 -15.2%

Scooter sales were also witness to some serious competition and here too, volume growth of 4% YoY came in lower than the industry growth of 9% YoY. Motorcycles exports however continued to be the saving grace as volumes grew by an impressive 68% YoY. Infact, exports provided some respectability to the overall volumes, which were otherwise threatening to fall much lower.

cost break up
(Rs m) 3QFY07 3QFY08 Change
Raw materials 7,042 6,502 -7.7%
% sales 75.3% 74.3%  
Staff cost 463 482 4.0%
% sales 5.0% 5.5%  
Other expenditure 1,553 1,616 4.1%
% sales 16.6% 18.5%  

On the costs front, while TVS managed to keep raw materials expenses under check, certain one-time expenses hurt margins and as a consequence they fell by 150 basis points.

The company sold some of its land and pocketed profits of more than Rs 100 m during the quarter. Absent the same, the bottomline of the company was in danger of going into the red due to much lower operating profits and high depreciation charges. Lower interest expenses also helped matters.

What to expect?
At the current price of Rs 45, the stock is trading at a price to earnings multiple of 7 times its FY10 earnings. We had projected an EPS in the region of Rs 2 for the current financial year. However, if the first nine-month trend is any indication, it looks unlikely that the company would be able to achieve the same. From a long-term perspective however, we remain positive on the stock given its entry into newer segments like three-wheelers and robust product roll out plans.

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