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TVS Motor: Decent beginning - Views on News from Equitymaster
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TVS Motor: Decent beginning
Sep 21, 2015

TVS Motor announced the first quarter results of financial year 2015-2016 (1QFY16). The company reported a 14% YoY and 25% YoY growth in revenues and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 14% YoY during 1QFY16, while volumes are up 9% YoY.
  • Operating margins expand by 0.5% to 6.2% resulting in the 24% YoY growth in operating profits.
  • In tandem with the growth in operating profits, net profits grow by 25% YoY.

Financial performance summary
(Rs m) 1QFY15 1QFY16 Change
Net sales 23,054 26,212 13.7%
Expenditure 21,736 24,575 13.1%
Operating profit (EBDITA) 1,318 1,637 24.2%
EBDITA margin (%) 5.7% 6.2%  
Other income 83 96 16.0%
Interest expense/(income) 60 130 119.0%
Depreciation/ Amortisation 336 422 25.7%
Profit before tax 1,005 1,181 17.5%
Tax 282 278 -1.5%
Profit after tax/(loss) 723 903 24.8%
Net profit margin (%) 3.1% 3.4%  
No. of shares (m) 475.1 475.1  
Diluted earnings per share (Rs)**   7.7  
Price to earnings ratio (x)*   30.3  
(* on trailing twelve months earnings)
(**excluding extraordinary items)

What has driven performance in 1QFY16?
  • TVS' revenues grew by 14% YoY during 1QFY16 led by the 9% YoY growth in volumes. Volume growth was strong in both the domestic and export markets. As far as the segments are concerned, total two-wheeler volumes grew by 9% YoY. In this, volumes of scooters grew by a tepid 9% YoY, while domestic motorcycle volumes managed to grow by a decent 12% YoY. Three wheelers were up 21% YoY. Exports growth of both two and three wheelers was healthy at 23% YoY.

  • TVS' operating profits grew by 24% YoY, as operating margins expanded by 0.5% to 6.2% during the quarter. This was on account of lower raw material and staff costs (as percentage of sales).

  • On account of the surge in interest costs, the growth in PBT was lower at 17.5% YoY. However, reduction in tax expenses ensured that the bottomline growth at 25% YoY was in tandem with that of operating profits.
What to expect?
At the current price of Rs 234, the stock trades at a multiple of 21 times our estimated FY17 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 with a view to increase realisations and profitability. The company also has some product launches lined up in the motorcycle space in FY16. However, the stock price has run up considerably and in light of valuations being on the higher side, our view is that investors not buy the stock at current levels.

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