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TVS Motor: A decent quarter - Views on News from Equitymaster

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TVS Motor: A decent quarter

Feb 3, 2014

TVS Motor announced the third quarter results of financial year 2013-2014 (3QFY14). The company reported a 13% YoY and 31.2% YoY growth in revenues and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 13% YoY during 3QFY14, while volumes are up 3.2% YoY.
  • Operating margins improved marginally to 6% from 5.9% seen in 3QFY13. This was a result of a 15.4% YoY growth in operating profits.
  • The net profit grew by 31.2% YoY. This was a result of the good operating performance as well as lower interest costs and higher other income in the quarter.

Financial performance summary
(Rs m) 3QFY13 3QFY14 Change 9MFY13 9MFY14 Change
Sales 18,216 20,576 13.0% 53,833 58,062 7.9%
Expenditure 17,147 19,342 12.8% 50,678 54,667 7.9%
Operating profit (EBITDA) 1,069 1,234 15.4% 3,156 3,394 7.6%
Operating profit margin (%) 5.9% 6.0%   5.9% 5.8%  
Other income 46 78 67.6% 139 236 69.5%
Interest expense/(income) 118 53 -54.9% 425 171 -59.8%
Depreciation/Amortisation 328 327 -0.2% 957 956 -0.2%
Exceptional Items - -   - 303  
Profit before tax 670 932 39.0% 1,913 2,807 46.7%
Tax 146 244 67.4% 425 712 67.3%
Profit after tax/(loss) 525 688 31.2% 1,487 2,095 40.9%
Net profit margin (%) 2.9% 3.3%   2.8% 3.6%  
No. of shares         475.1  
Diluted Earnings per share (Rs)*         3.7  
P/E ratio (x)*         21.2  
* On a trailing 12 months basis; adjusted for exceptional items

What has driven performance in 3QFY14?
  • TVS Motor had a decent quarter in 3QFY14 with volumes growing overall by 3.2% YoY. Revenues were up by 13% on a YoY basis. Two wheeler sales were up 5% YoY driven by a strong 19% YoY growth in scooter sales. Exports were up an impressive 39% YoY. Three wheeler sales were also up strongly by 52% YoY.

    Cost break-up
    (Rs m) 3QFY13 3QFY14 Change 9MFY13 9MFY14 Change
    Raw Materials 13,229 14,619 10.5% 39,312 41,286 5.0%
    % of sales 72.6% 71.0%   73.0% 71.1%  
    Staff costs 1,043 1,230 17.9% 3,144 3,541 12.7%
    % of sales 5.7% 6.0%   5.8% 6.1%  
    Other Expenditure 2,875 3,493 21.5% 8,222 9,840 19.7%
    % of sales 15.8% 17.0%   15.3% 16.9%  
    Total Expenditure 17,147 19,342   50,678 54,667  

  • The operating margin grew by 15.4% YoY. The good sales performance was largely responsible for the same. Raw material costs (as a percentage of sales) were also lower on a YoY basis.

  • The net profit grew 31.2% YoY on the back of a strong operating performance. Lower interest costs (which declined 54.9% YoY) also helped the bottomline performance.
What to expect?
At the current price of Rs 79.5, the stock trades at a multiple of 21.4 times its trailing twelve months (TTM) earnings (including extraordinary items).

The company intends to improve its product portfolio during the rest of 2014. It will launch 2 new products by the end of this financial year. The scooter 'Jupiter' launched during 2QFY14 has received a good response and the company has expanded the sales presence of this product pan-India in 3QFY14. The company has seen good growth in the recent past in exports and this was evident in this quarter as well. However sales continued to remain sluggish in the domestic market due to the slow-down in the auto market. The company is in the process of renewing its product portfolio and this is expected to be completed only by the end of FY15. While this would hold the company in good stead for the future, the near term continues to be challenging for the company.

The stock had breached our target price and we had closed our position as highlighted in the StockSelect report of October 2013. The stock has run up considerably since then and we maintain our view that investors do not buy the stock at current levels.

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