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TVS Motor: A slowdown is visible - Views on News from Equitymaster

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TVS Motor: A slowdown is visible
Apr 12, 2012

TVS Motor announced the third quarter results of financial year 2011-2012 (3QFY12). The company reported a 7% YoY increase in revenues, while profits grew by 1% YoY. Here is our analysis of the results.

Performance summary
  • Revenues increase by 7% YoY during 3QFY12 led by higher sales of scooters and exports.
  • Operating margins contract marginally by 0.2% YoY on the back of higher other expenditure (as a percentage of sales).
  • Poor performance at the operating level coupled with reduction in other income and higher taxes lead to the mere 1% YoY growth in the bottomline.


Financial performance summary
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Net sales 16,467 17,622 7.0% 46,559 55,000 18.1%
Expenditure 15,295 16,400 7.2% 43,122 51,064 18.4%
Operating profit (EBDITA) 1,171 1,223 4.4% 3,436 3,936 14.6%
EBDITA margin (%) 7.1% 6.9%   7.4% 7.2%  
Other income 72 1 -99.3% 140 24 -83.0%
Interest expense/(income) 96 103 7.4% 408 331 -19.0%
Depreciation/Amortisation 445 364 -18.1% 1,283 1,087 -15.3%
Profit before tax 703 756 7.5% 1,885 2,543 34.9%
Tax 145 190 30.9% 376 624 66.0%
Profit after tax/(loss) 557 565 1.4% 1,509 1,918 27.1%
Net profit margin (%) 3.4% 3.2%   3.2% 3.5%  
No. of shares (m)       475.1 475.1  
Diluted earnings per share (Rs)*         4.9  
Price to earnings ratio (x)*         8.4  
(* on trailing twelve months earnings)

What has driven performance in 3QFY12?
  • TVS' revenues increased by 7% YoY during the quarter. Growth in total two wheeler sales in 3QFY12 was flat. This was largely due to the 9% YoY decline in motorcycles sales. However, scooter volumes grew by 11% YoY and helped prop up overall growth. Two wheeler exports grew strongly by 24% YoY during the quarter and helped the company cushion the impact of a slowdown in the domestic market. As for sales of three-wheelers, after first 2 quarters of strong growth, volumes of these fell by 12% YoY during the quarter. For the nine month period, total revenues grew by 18% YoY.

    Cost break-up...
    (Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    Raw materials 12,046 12,717 5.6% 33,900 40,492 19.4%
    % sales 73.2% 72.2%   72.8% 73.6%  
    Staff cost 868 905 4.2% 2,444 2,752 12.6%
    % sales 5.3% 5.1%   5.3% 5.0%  
    Other expenditure 2,381 2,778 16.7% 6,778 7,820 15.4%
    % sales 14.5% 15.8%   14.6% 14.2%  
    Total expenses 15,295 16,400   43,122 51,064  

  • TVS' operating profits increased by 4% YoY, a tad slower as compared to the increase in revenues as expenses increased by 7.2% YoY. Operating margins dropped marginally by 0.2% YoY to 6.9% on the back of higher other expenditure (as a percentage of sales). These stood at 15.8% of the company's revenues for the quarter as compared to 14.5% in the corresponding quarter last year. For the nine month period, operating margins contracted marginally by 0.2% leading to a 15% YoY growth in operating profits.

  • Poor performance at the operating level coupled with reduction in other income and higher taxes led to the mere 1% YoY growth in the bottomline. For the nine month period, growth in net profits stood at 27% YoY.

What to expect?
At the current price of Rs 42, the stock trades at a multiple of 5.4 times our estimated FY14 cash flow per share. TVS Motor's operating performance has been quite volatile in the past, although the last two years saw the company expand margins. Having said that, the overall auto industry in the fiscal so far has witnessed a slowdown on account of rising fuel prices and interest rates, and TVS Motors has been no exception as was evident this quarter. Further, operating margins could continue to remain under pressure going forward. Overall, we maintain our cautious view on the stock.

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