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TVS Motor: A stellar year of growth - Views on News from Equitymaster
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TVS Motor: A stellar year of growth
Apr 30, 2011

TVS Motor announced the fourth quarter results of financial year 2010-2011 (4QFY11). The company reported a 35% YoY increase in revenues, while profits grew by 105% YoY. Here is our analysis of the results.

Performance summary
  • Revenues increase by 42% YoY during FY11. Total two-wheeler volumes stand at 2,006,808 units, which is higher by about 32% YoY.
  • Operating margins contract by 0.8% YoY on the back of higher raw material costs (as a percentage of sales).
  • Profits rise by a whopping 119% YoY on the back of absence of extraordinary expense (present in FY10), rise in other income and reduction in depreciation/ amortization costs.

Financial performance summary
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Net sales 11,924 16,046 34.6% 43,631 61,775 41.6%
Expenditure 11,195 15,244 36.2% 40,803 58,254 42.8%
Operating profit (EBDITA) 729 803 10.1% 2,828 3,521 24.5%
EBDITA margin (%) 6.1% 5.0%   6.5% 5.7%  
Other income 259 291 12.4% 675 1,148 70.1%
Interest expense/(income) 123 57 -53.9% 632 1,100 74.1%
Depreciation/ Amortisation 418 421 0.8% 1,643 1,068 -35.0%
Extraordinary items (382) -   (467) -  
Profit before tax 65 616 845.8% 762 2,501 228.3%
Tax (138) 199   (118) 575  
Profit after tax/(loss) 203 417 105.4% 880 1,926 118.8%
Net profit margin (%) 1.7% 2.6%   2.0% 3.1%  
No. of shares (m)       237.5 475.1  
Diluted earnings per share (Rs)*         4.1  
Price to earnings ratio (x)*         13.9  
(* on trailing twelve months earnings)

What has driven performance in FY11?
  • TVS' revenues increased by 42% YoY during the year. Growth was led by a 32% YoY increase in total two-wheeler sales. Volumes during last year stood at 1,521,939 units. As for sales of three-wheelers, the company saw a strong 166% YoY rise in volumes during the year. The company sold 39,680 units this year as compared to 14,980 units in FY10.

    Motorcycles sales volumes formed nearly 41% of the total volumes (same as last year), and grew by 31% YoY. Sales of scooters on the other hand, grew at a faster pace of 51% YoY and contributed to nearly 23% of total sales volumes during the year. Two wheeler exports sales also increased at a healthy pace of 39% YoY and stood at 229,132 units.

    Cost break up...
    (Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
    Raw materials 8,347 11,936 43.0% 31,022 45,836 47.8%
    % sales 70.0% 74.4%   71.1% 74.2%  
    Staff cost 773 804 3.9% 2,513 3,248 29.3%
    % sales 6.5% 5.0%   5.8% 5.3%  
    Other expenditure 2,075 2,504 20.7% 7,268 9,170 26.2%
    % sales 17.4% 15.6%   16.7% 14.8%  
    Total expenses 11,195 15,244   40,803 58,254  

  • TVS' operating profits increased by 25% YoY, a slower pace as compared to the increase in revenues as expenses increased by 43% YoY. Operating margins dropped by 0.8% YoY to 5.7% on the back of higher raw material expenses (as a percentage of sales). Raw material costs stood at 74.2% of the company's revenues for the year as compared to 71.1% last year.

  • TVS' net profits rose by 119% YoY, a much sharper rise as compared to the increase in operating profits. One of the reasons for this was that the company had an extraordinary expense last year which was not there this year and on excluding this impact, growth in net profits stood at 43% YoY. What also helped matters was the 70% YoY rise in other income and 35% YoY drop in depreciation. The growth would have been even higher had it not been for the sharp rise in tax expenses.

What to expect?
At the current price of Rs 56, the stock trades at a multiple of 13.9 times its trailing twelve month earnings. (ResearchPro subscribers, kindly click here). We are in the process of updating our research report on the company and will come out with a view soon.

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