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TVS Motor: Inventory Push Erodes Margins! - Views on News from Equitymaster
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TVS Motor: Inventory Push Erodes Margins!
May 22, 2017

TVS Motor Company ltd has announced its financial results for the fourth quarter of the financial year 2016-17 (4QFY17). During the quarter, revenues grew by 0.8% YoY and net profits were down by 6.8%.

Performance summary
  • For 4QFY17, net sales grew marginally by 0.8% YoY with volumes growing at 2.2%. The increase in the volume was on the back of some good recovery in the Mopeds (up 13.9% YoY) and scooter segments (up 12.6% YoY).
  • Motorcycles were down 13% YoY, scooters were up 12.6% and three wheelers were down 28.6%. However, the Mopeds continued showing strong growth and grew by 13.9% The growth in the mopeds was largely due to low base and the replacement demand. Further, management indicated this kind of growth is not sustainable for mopeds.
  • However, realisation fell by 1% YoY due to aggressive discounting towards the end of the quarter to dispose the BS-III complied vehicles.
  • Operating profits for the quarters declined by 19.2% YoY with margins contracting by 129 bps to 5.3%. In addition to aggressive discounting, the increase in raw material prices also led to the pressure on the margins.
  • Net profits decline by 6.8% YoY with margin contracting by 33.5 bps to 4.1%.
  • For FY17, the top line grew by 9.3% and the net profits grew by 20.1%. Further, the company has declared a total dividend of Rs 2.5 per share for FY17.

    Consolidated Financial Performance Snapshot
    (Rs m) 4QFY16 4QFY17 Change FY16 FY17 Change
    No. of two wheelers sold 660,469 674,870 2.2% 2,679,264 2,927,280 9.3%
    Net sales 30,522 30,760 0.8% 124,239 135,739 9.3%
    Expenditure 28,523 29,145 2.2% 116,078 127,051 9.5%
    Operating profit (EBDITA) 1,999 1,615 -19.2% 8,161 8,688 6.5%
    EBDITA margin (%) 6.5% 5.3% -129.91 6.6% 6.4% -16.86
    Other income 386 632 63.9% 914 1,654 81.1%
    Depreciation 671 775 15.4% 2,622 3,168 20.8%
    Interest 144 132 -8.1% 700 596 -14.9%
    Profit before tax 1,570 1,340 -14.6% 5,753 6,578 14.3%
    Tax 210 73 -65.4% 1,515 1,487 -1.8%
    Profit after tax / (loss) 1,360 1,268 -6.8% 4,238 5,091 20.1%
    Net profit margin (%) 4.5% 4.1% -33.56 3.4% 3.8% 33.94
    Diluted earnings per share (Rs)*   11.7        
    Price to earnings ratio (x)*   44.6        

    *trailing twelve-month earnings

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Oct 23, 2017 (Close)

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