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TVS Motor: Scooters lead the charge - Views on News from Equitymaster

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TVS Motor: Scooters lead the charge
Jun 11, 2012

TVS Motor announced the fourth quarter results of financial year 2011-2012 (4QFY12). The company reported a 1% YoY fall in revenues, while profits grew by 31% YoY. Here is our analysis of the results.

Performance summary
  • Revenues fall by 1% YoY during 4QFY12, while for the year they grow by 13% YoY.
  • Operating margins increase marginally by 0.2% YoY on the back of lower raw material costs and other expenditure (as a percentage of sales).
  • Net profits, however, grow by 31% YoY on account of a substantial reduction in tax expenses.

Financial performance summary
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net sales 16,353 16,272 -0.5% 62,880 71,262 13.3%
Expenditure 15,384 15,282 -0.7% 58,960 66,568 12.9%
Operating profit (EBDITA) 969 989 2.1% 3,921 4,694 19.7%
EBDITA margin (%) 5.9% 6.1%   6.2% 6.6%  
Other income - 83   356 217 -39.1%
Interest expense/(income) 126 133 5.5% 723 571 -21.1%
Depreciation/ Amortisation 248 317 28.2% 1,073 1,175 9.6%
Profit before tax 596 622 4.4% 2,481 3,165 27.6%
Tax 159 50 -68.8% 535 674 25.9%
Profit after tax/(loss) 437 572 31.0% 1,946 2,491 28.0%
Net profit margin (%) 2.7% 3.5%   3.1% 3.5%  
No. of shares (m)       475.1 475.1  
Diluted earnings per share (Rs)*         5.2  
Price to earnings ratio (x)*         6.3  
(* on trailing twelve months earnings)

What has driven performance in FY12?
  • TVS' revenues increased by 13% YoY during the year led by 7% YoY growth in volumes of two wheelers. In this, scooters and mopeds did well to grow by 12% YoY and 10% YoY respectively. Growth in motorcycles was subdued at 1% YoY. Two wheeler export volumes grew strongly by 20% YoY during the year and helped the company cushion the impact of a slowdown in the domestic market. As for sales of three-wheelers, volume growth for the full year was flat.

    Cost break-up...
    (Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
    Raw materials 12,005 11,890 -1.0% 46,139 52,611 14.0%
    % sales 73.4% 73.1%   73.4% 73.8%  
    Staff cost 823 949 15.4% 3,267 3,701 13.3%
    % sales 5.0% 5.8%   5.2% 5.2%  
    Other expenditure 2,556 2,444 -4.4% 9,553 10,257 7.4%
    % sales 15.6% 15.0%   15.2% 14.4%  
    Total expenses 15,384 15,282   58,960 66,568  

  • TVS' operating profits grew by 20% YoY during the year, higher as compared to the increase in revenues as operating margins improved by 0.4% YoY to 6.6%. This was on the back of lower other expenditure (as a percentage of sales). These stood at 14.4% of the company's revenues for FY12 as compared to 15.2% in FY11.

  • Expansion in operating margins coupled with lower interest expenses led to the 28% YoY growth in net profits. For the fourth quarter, growth in net profits stood at 31% YoY despite the tepid 4% YoY growth in profit before tax (PBT) on account of a substantial reduction in tax expenses.

What to expect?
At the current price of Rs 33, the stock trades at a multiple of 4.4 times our estimated FY14 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 which will increase realisations and profitability. The company also expects exports to be a significant growth engine. The company could face pressure in the near term, however, just like its peers on account of the slowdown in the Indian economy. That said, overall, we maintain our positive view on the stock.

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