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TVS Motor: Is the worst behind?
Jun 26, 2009

Performance summary
  • Standalone topline grows by 14% on a YoY basis
  • Operating margins expand by 120 basis points, leading to a strong 53% jump in operating profits
  • PBT falls 27% as lower other income and huge jump in interest expense play spoilsport
  • Lower extraordinary expense and tax outgo help salvage significant profitability but not prevent a marginal decline of 2% in bottomline
  • Announces a dividend of Rs 0.7 per share (dividend yield of 1.6%)


(Rs m) FY08 FY09 Change
Net sales 32,702 37,367 14.3%
Expenditure 31,474 35,489 12.8%
Operating profit (EBDITA) 1,229 1,878 52.8%
EBDITA margin (%) 3.8% 5.0%  
Other income 212 45 -78.7%
Interest (net) 22 550 2411.9%
Depreciation 946 1,029 8.8%
Profit before tax 473 344 -27.3%
Extraordinary income/(expense) (119) (33)  
Tax 36 0 -99.4%
Profit after tax/(loss) 318 311 -2.1%
Net profit margin (%) 1.0% 0.8%  
No. of shares (m)   237.5  
Diluted earnings per share (Rs)*   1.3  
Price to earnings ratio (x)*   34.4  
* on trailing twelve months earnings

What has driven performance in FY09?
  • TVS managed to post a topline growth of 14% YoY during the fiscal, which, given the circumstances was a good achievement indeed. The company’s overall volumes witnessed a growth of 5%, meaning that a majority of the topline growth came in due to improved product mix and better realisation. Motorcycles, which account for nearly half its total volumes, managed to grow by 6%, aided to some extent by a couple of new launches. Sales of scooters on the other hand, remained virtually stagnant. The show stealer however was once again the exports business as it witnessed an impressive 44% growth in volumes. Important to add that during the year, the company added two new countries to its portfolio and its products are now being exported to 55 countries.

    Cost break-up…
    (Rs m) FY08 FY09 Change
    Raw materials 24,338 27,801 14.2%
    % sales 74.4% 74.4%  
    Staff cost 1,764 2,045 16.0%
    % sales 5.4% 5.5%  
    Other expenditure 5,372 5,643 5.0%
    % sales 16.4% 15.1%  

  • It’s not just the growth in topline, TVS has also done well on the costs front. Its costs have grown at slightly lower rate than the topline but given its huge operating leverage, it has resulted into a strong 53% jump in the company’s operating profits during the fiscal. The key reason for the improved operating performance has been the reduction in other expenses, which have come in lower by 130 bps as a percentage of sales. Had it not been for the 16% growth in wages, operating performance could have come even better.

  • Failing to translate the operating level buoyancy at the PBT (profit before tax) level, the company’s PBT has fallen by 27% YoY during the fiscal. While rise in depreciation has been benign, it is the lower other income and significantly higher interest expenses that have played spoilsport. Especially the latter as it has witnessed more than a 25 fold jump. While the company has not put forth any particular reason for the sharp jump in interest costs, we believe it could be largely towards meeting the working capital needs.

  • Despite the 27% fall in PBT, the company’s PAT has come in lower by just 2%. This was largely due to lower extraordinary expenses and a significant decline in tax outgo. Presence of some manufacturing plants in tax havens and tax incentives on R&D has led to the company’s tax outgo falling sharply during the year.

What to expect?
At the current price of Rs 45, the stock trades at a multiple of 4.7 times our estimated FY11 cash flow per share. While the company’s topline has come in slightly higher than our projections, its net profits have come in largely in line with our estimates. We are enthused with the company’s performance and should it be able to sustain its operating margins, which we believe it should, it will emerge as a decent medium term opportunity. We will soon come out with an updated report on the company.

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Feb 19, 2018 (Close)

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