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TVS Motor: Scooters & mopeds save the day - Views on News from Equitymaster

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TVS Motor: Scooters & mopeds save the day
Apr 21, 2010

TVS Motor Ltd has announced its FY10 results. The company has reported a 18% YoY and 178% YoY growth in sales and net profits respectively. Here is our analysis of the results

Performance summary
  • Topline grows by 34% YoY during the fourth quarter.
  • Operating profits grow by an impressive 51% as margins expand by nearly 1%.
  • A big exceptional item takes some sheen off the company’s operating performance and results in a bottomline growth of 39% YoY during the quarter.
  • Bottomline for the full year jumps nearly threefold on the back of an 18% growth in topline.


(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales 9,093 12,160 33.7% 37,367 44,240 18.4%
Expenditure 8,467 11,217 32.5% 34,909 40,823 16.9%
Operating profit (EBDITA) 627 943 50.6% 2,458 3,417 39.0%
EBDITA margin (%) 6.9% 7.8%   6.6% 7.7%  
Other income 26 44 71.1% 45 74 64.9%
Interest expense/(income) 139 123 -11.4% 550 628 14.1%
Depreciation 410 418 2.0% 1,609 1,640 1.9%
Profit before tax 104 447 329.4% 344 1,223 255.7%
Extraordinary items (33) (382)   (33) (462)  
Tax (75) (138) 84.1% 0 (104)  
Profit after tax/(loss) 146 203 38.8% 311 865 178.2%
Net profit margin (%) 1.6% 1.7%   0.8% 2.0%  
No. of shares (m) 237.5 237.5   237.5 237.5  
Diluted earnings per share (Rs)*         3.6  
Price to earnings ratio (x)*         24.2  
(* on trailing twelve months earnings)

What has driven performance in FY10?
  • A growth of 13% in two-wheeler sales was the key driver of the 18% growth in value terms for the full year. It is usually the motorcycles segment that drives company’s volumes. However, that was not the case this time around. Subdued exports and intense competition in domestic markets meant that the motorcycles volumes were almost static. However, scooters shone and grew by nearly 20%. This gave a big fillip to overall two-wheeler sales. Sales of three wheelers also came in pretty robust and jumped more than three-fold, albeit on a lower base. The company managed to increase its three-wheeler footprint to fourteen Indian states. This augurs well for the future growth potential of the segment. Furthermore, with exports expected to pick up and the company lining up new models, volume growth that it experienced in FY10 has a good chance of repeating itself in FY11.

    Cost break-up...
    (Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
    Raw materials 6,470 8,112 25.4% 27,028 30,237 11.9%
    % sales 71.1% 66.7%   72.3% 68.3%  
    Staff cost 427 773 81.2% 2,045 2,509 22.7%
    % sales 4.7% 6.4%   5.5% 5.7%  
    Other expenditure 1,570 2,331 48.4% 5,836 8,077 38.4%
    % sales 17.3% 19.2%   15.6% 18.3%  

  • The company's high operating leverage has meant that even a 1% improvement in operating margins has led to a 39% growth in operating profits for the full year. While raw material costs have come down significantly as a percentage of sales on account of lower commodity prices, higher other expenditure has taken some sheen off the same. Nevertheless, the company has still managed to eke out margin improvement.

  • Apart from higher operating margins, benign depreciation charges and lower than proportionate growth in interest costs has helped the company to propel its growth further, and has resulted in a strong growth in net profits. Had it not been for the one time exceptional loss of Rs 462 m, the growth in net profits would have been even higher.

What to expect?
At the current price of Rs 88, the stock trades at a multiple of 8.6 times our estimated FY12 cash flow per share. The company has done well of late not only in terms of improving its topline but also in containing costs. However, any further improvement on the margin front looks difficult to come by and the overall growth will have to be driven by higher volumes. While the same has received an impetus on account of the company's entry in the three-wheeler business, we expect TVS to continue to remain a distant third in the two-wheeler space. The stock's valuations at current levels warrant some degree of caution.

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