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TVS Motor: Scooters play spoilsport - Views on News from Equitymaster
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TVS Motor: Scooters play spoilsport
Feb 19, 2013

TVS Motor announced the third quarter results of financial year 2012-2013 (3QFY13). The company reported a mere 1% YoY growth in revenues, while profits fell by 7% YoY. Here is our analysis of the results.

Performance summary
  • Revenues grow by a mere 1% YoY during 3QFY13 largely due to a drop in volumes of scooters.
  • Operating margins fall by 1.3% YoY to 5.9% during 3QFY13 on the back of higher staff costs and other expenditure (as a percentage of sales).
  • However, fall in bottomline at 7% is lower than that in operating profits on account of higher other income and lower interest costs and tax expenses.

Financial performance summary
(Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Net sales 17,755 17,992 1.3% 55,118 53,167 -3.5%
Expenditure 16,469 16,922 2.8% 51,293 49,939 -2.6%
Operating profit (EBDITA) 1,286 1,070 -16.8% 3,825 3,228 -15.6%
EBDITA margin (%) 7.2% 5.9%   6.9% 6.1%  
Other income (96) 46   13 67 408.4%
Interest expense/(income) 139 118 -15.1% 438 425 -3.0%
Depreciation/ Amortisation 295 328 11.0% 858 957 11.6%
Profit before tax 756 670 -11.3% 2,543 1,913 -24.8%
Tax 190 146 -23.5% 624 425 -31.9%
Profit after tax/(loss) 565 525 -7.2% 1,918 1,487 -22.5%
Net profit margin (%) 3.2% 2.9%   3.5% 2.8%  
No. of shares (m)       475.1 475.1  
Diluted earnings per share (Rs)*         4.3  
Price to earnings ratio (x)*         9.8  
(* on trailing twelve months earnings)

What has driven performance in 3QFY13?
  • TVS' revenues grew by a mere 1% YoY during the quarter led by poor performance of two-wheelers. While motorcycle volumes managed to grow by 2% YoY, the scenario for scooters was worse as volumes dipped 19% YoY. The company was not spared on the exports front either as volumes fell 22% YoY. The only silver lining in the cloud was three wheelers as volumes managed to grow by a robust 53% YoY. The overall poor performance was attributed to sluggish conditions in the auto industry on account of slowdown in the Indian economy, firm interest rates and delayed monsoons.

    Cost break-up...
    (Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
    Raw materials 12,786 12,955 1.3% 40,721 38,546 -5.3%
    % sales 72.0% 72.0%   73.9% 72.5%  
    Staff cost 905 1,043 15.2% 2,752 3,144 14.2%
    % sales 5.1% 5.8%   5.0% 5.9%  
    Other expenditure 2,778 2,925 5.3% 7,820 8,249 5.5%
    % sales 15.6% 16.3%   14.2% 15.5%  
    Total expenses 16,469 16,922 2.8% 51,293 49,939 -2.6%

  • TVS' operating profits fell by 17% YoY during the quarter, as operating margins shrunk by 1.3% YoY to 5.9%. This was on the back of higher staff costs and other expenditure (as a percentage of sales). Staff costs stood at 5.8% of the company's revenues for 3QFY13 as compared to 5.1% in 3QFY12.

  • Although the bottomline fell by 7% YoY, this drop was lesser than that in operating profits on account of higher other income and lower interest costs and tax expenses.

What to expect?
At the current price of Rs 43, the stock trades at a multiple of 5.1 times our estimated FY15 cash flow per share. Going forward, the company intends to focus on new products across segments and is also looking to improve the product mix with a view to increase realisations and profitability. The company expects exports to be a significant growth engine too although Sri Lanka will be a problem given that volumes for the industry have dipped there on account of a significant hike in import duty. Further, the company will continue to face pressure in the near term just like its peers on account of the slowdown in the Indian economy and competition intensifying in the two wheeler space. Due to the company's poor performance for 9mFY13, we shall have to downgrade our estimates for the full year. Thus, at the current valuations we recommend investors to 'Hold' on to the stock.

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