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TVS Motor: Operating leverage kicks in - Views on News from Equitymaster
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TVS Motor: Operating leverage kicks in
Aug 1, 2009

Performance summary
  • Topline grows by 7% YoY, led by 2% YoY volume growth.
  • Operating margins expand by 1.5% YoY during the quarter on the back of lower raw material and staff costs
  • Excluding the forex changes, net profits increase by 163% YoY.

Financial picture
Rs m 1QFY09 1QFY10 Change
Net sales 9,245 9,887 6.9%
Expenditure 8,798 9,261 5.3%
Operating profit 446 626 40.3%
Operating margins (%) 4.8% 6.3%  
Other Income 3 3 10.7%
Interest (net) 96 171 79.1%
Depreciation 253 254 0.4%
Profit before Tax 100 204 103.4%
Forex gain /loss - (3)  
Tax 30 19 -36.0%
Profit after Tax/(Loss) 70 181 158.2%
Net profit margin (%) 0.8% 1.8%  
No. of Shares (m) 237.0 237.0  
Diluted Earnings per share (Rs)*   1.78  
Current P/e ratio   33.1  
*12 months trailing earning

What has driven performance in 1QFY10?
  • TVS Motor reported a topline growth of 7% YoY. This was led by a 2% YoY volume growth. While motorcycles volumes which accounts for 60% of the total volumes dropped by 10% YoY mainly on account of higher competition, scooter sales improved by 3% YoY. Three wheeler sales tripled to 2,223 units in comparison to 765 units in the corresponding period of the previous year. On the exports front, the company witnessed a decline of 24% YoY. Its new models - Apache RTR 180 in the premium segment and the 2009 model TVS Flame SR 125 in the executive segment received good response. However, it has underperformed the of 12% motorcycle segment growthYoY.

    Cost break-upů
    (Rs m) 1QFY09 1QFY10 Change
    Raw materials 6,958 7,156 2.8%
    % sales 75.3% 72.4%  
    Staff cost 506 523 3.5%
    % sales 5.5% 5.3%  
    Other expenditure 1,334 1,581 18.5%
    % sales 14.4% 16.0%  

  • The company witnessed operating margin expansion of 1.5% YoY during the quarter on the back of lower raw material and staff costs as a percent of sales. However, the other expenses saw an increase.

  • Excluding the forex changes, the net profits have grown by 163% YoY. Margin expansion coupled with lower depreciation and tax outgo has aided the growth. The tax rate fell from 30% to 9.4%.

What to expect?
At Rs 59, the stock is trading at a price to earnings multiple of 7.4 times our FY11 estimated cash flow per share. While TVS Motor has done decent on the growth front, it has lost market share to its peer Hero Honda. This is evident from the decline in the motorcycles volume sales. Also, its margins have not expanded as significantly as expected. We remain cautious on the stock, especially after the recent run up in price.

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Feb 16, 2018 (Close)


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