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TVS Motor: Strong start to the year - Views on News from Equitymaster

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TVS Motor: Strong start to the year
Aug 8, 2011

TVS Motor announced the first quarter results of financial year 2011-2012 (1QFY12). The company reported a 25% YoY increase in revenues, while profits grew by 46% YoY. Here is our analysis of the results.

Performance summary
  • Revenues increase by 25% YoY during 1QFY12 led by higher sales of scooters, three wheelers and two wheeler exports.
  • Operating margins contract marginally by 0.2% YoY on the back of higher raw material costs (as a percentage of sales).
  • Profits rise by a healthy 46% YoY on the back of substantial fall in interest costs and depreciation charges.

Financial performance summary
(Rs m) 1QFY11 1QFY12 Change
Net sales 13,930 17,460 25.3%
Expenditure 12,893 16,207 25.7%
Operating profit (EBDITA) 1,037 1,254 20.9%
EBDITA margin (%) 7.4% 7.2%  
Other income 43 0  
Interest expense/(income) 170 116 -31.7%
Depreciation/ Amortisation 405 360 -11.2%
Profit before tax 505 779 54.3%
Tax 101 191 88.9%
Profit after tax/(loss) 404 588 45.7%
Net profit margin (%) 2.9% 3.4%  
No. of shares (m) 237.5 475.1  
Diluted earnings per share (Rs)*   4.4  
Price to earnings ratio (x)*   11.7  
* On a trailing 12 months basis

What has driven performance in 1QFY12?
  • TVS' revenues increased by 25% YoY during the quarter. Two wheeler sales saw a growth of 16% YoY in 1QFY12 with motorcycles sales growing at 10% YoY. What did very well, however, were scooters as volumes grew by a healthy 25 YoY. Two wheeler exports grew strongly by 36% YoY during the quarter and helped the company cushion the impact of a slowdown in the domestic market. As for sales of three-wheelers, the company saw a strong 52% YoY rise in volumes during the quarter.
  • Cost break-up...
    (Rs m) 1QFY11 1QFY12 Change
    Raw materials 10,138 13,044 28.7%
    % sales 72.8% 74.7%  
    Staff cost 729 909 24.7%
    % sales 5.2% 5.2%  
    Other expenditure 2,025 2,253 11.2%
    % sales 14.5% 12.9%  
    Total expenses 12,893 16,207  

  • TVS' operating profits increased by 21% YoY, a tad slower as compared to the increase in revenues as expenses increased by 26% YoY. Operating margins dropped marginally by 0.2% YoY to 7.2% on the back of higher raw material expenses (as a percentage of sales). Raw material costs stood at 74.7% of the company's revenues for the quarter as compared to 72.8% in the corresponding quarter last year. Had it not been for the 1.6% drop in other expenses (as percentage of sales), the contraction in operating margins would have been higher.

  • TVS' net profits rose by 46% YoY, a much sharper rise as compared to the increase in operating profits. What helped matters was the substantial decline in interest costs and depreciation charges. As a result, even though tax expenses rose considerably, the company was able to post a healthy growth in net profits.

What to expect?

At the current price of Rs 52, the stock trades at a multiple of 6.3 times our estimated FY14 cash flow per share. TVS Motor's operating performance has been quite volatile in the past, although the last two years saw the company expand margins. Going forward, the company could face some headwinds in the form of lower sales in the domestic market akin to its peers who have had to contend with rising interest rates and fuel prices. Operating margins could also remain under pressure. We maintain our cautious view on the stock.

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