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TVS Motor: A stellar year - Views on News from Equitymaster
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TVS Motor: A stellar year
May 15, 2015

TVS Motor announced the fourth quarter results of financial year 2014-2015 (4QFY15). The company reported a 14% YoY and 74% YoY growth in revenues and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 14% YoY during 4QFY15, while volumes are up 7% YoY.
  • Operating margins contract by 0.5% to 6.1% resulting in the lower 5% YoY growth in operating profits.
  • Net profits surge by 74% YoY is on account of an extraordinary expense in 4QFY14, which was not there this quarter. Excluding this impact, growth in net profits stands at 6% YoY.

Standalone financials: A snapshot
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Net sales 21,598 24,569 13.8% 79,659 100,982 26.8%
Expenditure 20,170 23,066 14.4% 74,838 94,939 26.9%
Operating profit (EBDITA) 1,428 1,502 5.2% 4,822 6,043 25.3%
EBDITA margin (%) 6.6% 6.1%   6.1% 6.0%  
Other income 66 92 39.3% 302 326 7.9%
Interest expense/(income) 83 127 52.6% 254 274 8.0%
Depreciation/ Amortisation 361 461 27.7% 1,317 1,533 16.5%
Profit before tax 1,050 1,007 -4.1% 3,553 4,562 28.4%
Exceptional items (331) -   (28) -  
Tax 198 101 -48.7% 909 1,083 19.2%
Profit after tax/(loss) 521 905 73.7% 2,616 3,478 32.9%
Net profit margin (%) 2.4% 3.7%   3.3% 3.4%  
No. of shares (m)       475.1 475.1  
Diluted earnings per share (Rs)**         7.3  
Price to earnings ratio (x)*         30.8  
(* on trailing twelve months earnings)
(**excluding extraordinary items)

What has driven performance in FY15?
  • TVS' revenues grew by 27% YoY during FY15 led by the 21% YoY growth in volumes. Volume growth was strong in both the domestic and export markets. As far as the segments are concerned, total two-wheeler volumes grew by 22% YoY. In this, volumes of scooters grew by a robust 50% YoY, while domestic motorcycle volumes managed to grow by a decent 17% YoY. Three wheelers also did well during the quarter with volumes up by 34% YoY. During the quarter, revenues were up 14% YoY. While volumes were up 7% YoY, realizations were up by around 6% YoY on account of a better product mix. Overall growth in volumes was strong on the back of new product launches.

  • TVS' operating profits grew by 25% YoY during the year, as operating margins remained stable at 6%. Higher raw material costs were offset by lower staff costs and other expenditure (as percentage of sales). For the quarter, growth in operating profits was restricted to 5% YoY, on account of the 0.5% contraction in operating margins.

  • During the year, net profits grew by 33% YoY. For the fourth quarter, net profit growth was strong at 74% YoY. However, this was largely on account of the extraordinary expense in 4QFY14, which was not there this quarter. On excluding the same, growth in net profits was much lower at 6% YoY.
What to expect?
At the current price of Rs 225, the stock trades at a multiple of 20.2 times our estimated FY17 cash flow per share. Going forward, the two wheeler industry could face some headwinds in the near term on account of the slowing rural demand (unseasonal rains having adversely impacted crop production). However, 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. Earlier launches such as the scooter TVS Jupiter and TVS Star Scooty continue to do well. The company also has some product launches lined up in the motorcycle space in FY16. However, the stock price has run up considerably and in light of valuations being on the higher side, our view is that investors not buy the stock at current levels.

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