TVS Motor: Inventory Push Erodes Margins!

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