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TVS: Growth 'revs' up

Apr 26, 2002

TVS Motor, formerly TVS Suzuki, has reported a sharp 28% rise in sales for 4QFY02 to Rs 5,765 m. While sales for the full year ended March 31, 2002 increased by 4%, net profit has declined by 13% to Rs 536 m. In what seemed to be disastrous year for TVS, the success of its newly launched model 'Victor' has brought back some sheen to its numbers. But at the same time, TVS's performance has to be viewed in relativity to its performance in the fourth quarter of 2000, as 2001 numbers were a blip.

(Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
Net sales 4,498 5,765 28.2% 18,582 19,302 3.9%
Other Income 23 54 136.1% 100 141 41.5%
Expenditure 4,311 5,329 23.6% 17,202 17,994 4.6%
Operating Profit (EBDIT) 187 436 132.9% 1,379 1,308 -5.2%
Operating Profit Margin (%) 4.2% 7.6%   7.4% 6.8%  
Interest 12 39 228.3% 150 133 -11.8%
Depreciation 121 100 -17.4% 470 496 5.3%
Profit before Tax 77 351 355.3% 858 820 -4.4%
Tax 34 119 249.1% 245 285 16.0%
Profit after Tax/(Loss) 43 232 439.3% 612 536 -12.5%
Net profit margin (%) 1.0% 4.0%   3.3% 2.8%  
No. of Shares (m) 23.1 23.1   23.1 23.1  
Diluted Earnings per share* 7.4 40.2   26.5 23.2  
P/E Ratio (x)   11.0     19.1  
* annualised            

The sharp rise in sales and margins in 4QFY02 were primarily led by success of its new models. Even within TVS's motorcycle sales, contribution of new models is estimated to have increased notably. This is encouraging, keeping in mind its relatively old models like 'Samurai' and 'Max 100R'. It is estimated that close to 18% of its motorcycle volumes in FY01 was contributed by 'Fiero', another high end model, which is in direct competition with Hero Honda's 'CBZ' and Bajaj's 'Pulsar'. Now with the launch of 'Victor', an indigenously developed model, the proportion has shifted more in favor for the company. Not all is rosy for TVS. Apart from motorcycles, the company also has presence in mopeds and scootterettes. According to our estimates, moped sales have fell 30% and scooter volumes have recorded a 2% rise in for FY02.

Not only have volumes gained momentum, average realisation has also increased notably. Just to put things in perspective, 'Fiero' and 'Victor' sells at around Rs 50,000 and Rs 42,000 respectively. As contribution from both the models has increased, average realisation per motorcycle that stood at Rs 27,480 in FY01 is estimated to have increased by atleast 4%. The rise in realisation, partly, is reflected in the sharp rise in operating margins in 4QFY02 to 8%.

The fourth quarter trend...
(Rs m) 4QFY00 4QFY01 4QFY02
Sales 4,419 4,498 5,765
Operating profit margin 9.2% 4.2% 7.6%
Profit after tax 220 43 232
Net profit margin 5.0% 1.0% 4.0%

As explained earlier, the performance of the company has to be viewed in relation to its 4QFY00 results. In the corresponding quarter last year, TVS reported a 81% fall in net profits to Rs 42 m with operating margins plummeting from 9% in 4QFY00 to 4% in 4QFY01. This was on the back of additional expenditure incurred towards complying with Euro norms last year. Due to a low base last year, profit figures in 4QFY02 seem to be on the higher side.

The stock currently trades at Rs 442 implying a P/E multiple of 19x FY02 earnings. Coming to the future growth prospects of the company, it has to be said that it is indeed challenging. While TVS has targeted at achieving 0.1 m Victor sales by mid FY03, competition has increased manifold after the new model launch. Both Hero Honda and Bajaj have lined up a number of models in the higher end segment, which could rev up another price war. It has also to be kept in mind that motorcycle volumes have already touched close to 2.4 m vehicles in FY02 and growth has to be scaled down in the future. We expect the motorcycle industry volumes to grow at 15%-20% in the coming fiscal as compared to almost 30% in FY02. Besides, TVS' presence in other segments like mopeds (42% of volumes in FY01) continues to remain a cause of concern.

The stock has run up significantly over the last few months and valuations at the current juncture seems to be on the higher side on the basis of peer value comparison. Hero Honda currently trades at a P/E multiple of around 14x FY03 earnings and so is Bajaj Auto. If motorcycle demand slows down in the near future, there could be a downward revision in valuations. One should also keep in mind that product life cycle is gradually shrinking and future growth prospects clearly lies in continuous successful new launches. Though TVS is reputed for its research and development facility, the track record is not very encouraging.

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