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TVS Motor: 2-wheelers are a drag
May 3, 2013

TVS Motor announced the fourth quarter results of financial year 2012-2013 (4QFY13). The company reported a 7% YoY growth in revenues and a loss of Rs 327 m at the net level. Here is our analysis of the results.

Performance summary
  • Revenues grow by 7% YoY during 4QFY13, while they fall by 1% YoY during the year.
  • Operating margins fall by 0.6% YoY to 5.4% during 4QFY13 on the back of higher other expenditure (as a percentage of sales).
  • While profit before tax grows by 2% YoY, the company reports a loss at the net level on account of an extraordinary expense of Rs 908 m.

Financial performance summary
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 16,371 17,483 6.8% 71,415 70,650 -1.1%
Expenditure 15,382 16,546 7.6% 66,722 66,560 -0.2%
Operating profit (EBDITA) 989 938 -5.2% 4,694 4,090 -12.9%
EBDITA margin (%) 6.0% 5.4%   6.6% 5.8%  
Other income  83  96 16.2% 217 238 9.8%
Interest expense/(income) 133  56 -58.2% 571 480 -15.9%
Depreciation/ Amortisation 317 347 9.3% 1,175 1,304 11.0%
Profit before tax 622 631 1.5% 3,165 2,544 -19.6%
Exceptional item   -  (908)    -  (908)  
Tax  50  50 1.4% 674 476 -29.4%
Profit after tax/(loss) 572 (327)   2,491 1,160 -53.4%
Net profit margin (%) 3.5% -1.9%   3.5% 1.6%  
No. of shares (m)       475.1 475.1  
Diluted earnings per share (Rs)**          4.4  
Price to earnings ratio (x)*          8.8  
(* on trailing twelve months earnings)
(**excluding extraordinary items)

What has driven performance in FY13?
  • TVS' revenues fell by 1% YoY during the year led by poor performance of two-wheelers (both motorcycles and scooters). Both scooters and motorcycle volumes dipped 15% YoY and 10% YoY respectively. In value terms, while sales from motorcycles fell by 4% YoY, the fall in scooter sales was even worse at 11% 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. The only silver lining in the cloud was three wheelers as volumes managed to grow by a robust 23% YoY during the year. In value terms, sales growth was even healthier at 36% YoY.

    Cost break-up...
    (Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
    Raw materials 11,890 12,419 4.5% 52,611 50,965 -3.1%
    % sales 72.6% 71.0%   73.7% 72.1%  
    Staff cost 949 928 -2.3% 3,701 4,071 10.0%
    % sales 5.8% 5.3%   5.2% 5.8%  
    Other expenditure 2,543 3,199 25.8% 10,410 11,523 10.7%
    % sales 15.5% 18.3%   14.6% 16.3%  
    Total expenses 15,382 16,546 7.6% 66,722 66,560 -0.2%

  • TVS' operating profits fell by 13% YoY during the year, as operating margins shrunk by 0.8% YoY to 5.8%. This was on the back of higher staff costs and other expenditure (as a percentage of sales). Other expenditure stood at 16.3% of the company's revenues for FY13 as compared to 14.6% in FY12.

  • Excluding the extraordinary expense during the year, the bottomline fell by 17% YoY on account of the poor performance at the operating level. The extraordinary expense of Rs 908 m was a provision that the company had made for diminution in the value of investment in its subsidiary TVSM-Europe.

What to expect?

At the current price of Rs 38, the stock trades at a multiple of 6.5 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. During the course of FY14, TVS plans to introduce a new motorcycle, a new scooter as well as a diesel three wheeler. It has also planned upgrades across its product portfolio. However, it 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. Overall, we recommend investors to 'Hold' on to the stock. We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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