TVS Motor: Exports give some relief - Views on News from Equitymaster

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TVS Motor: Exports give some relief

Sep 23, 2013 | Updated on Oct 30, 2019

TVS Motor announced the first quarter results of financial year 2013-2014 (1QFY14). The company reported a 5% YoY fall in revenues, while net profits grew by 1.5% YoY. Here is our analysis of the results.

Performance summary
  • Revenues fall by 5% YoY during 1QFY14 on the back of decline in volumes of two wheelers.
  • Operating margins fall marginally by 0.2% YoY to 5.6% during 1QFY14 on the back of higher staff costs and other expenditure (as a percentage of sales).
  • Net profits, however, grow by 1.5% YoY led by higher other income and reduction in interest costs.

Financial performance summary
(Rs m) 1QFY13 1QFY14 Change
Net sales 18,494 17,602 -4.8%
Expenditure 17,419 16,618 -4.6%
Operating profit (EBDITA) 1,075 984 -8.4%
EBDITA margin (%) 5.8% 5.6%  
Other income 51 86 70.3%
Interest expense/(income) 155 65 -57.8%
Depreciation/ Amortisation 310 314 1.5%
Profit before tax 661 691 4.4%
Tax 150 172 14.5%
Profit after tax/(loss) 511 519 1.5%
Net profit margin (%) 2.8% 2.9%  
No. of shares (m) 475.1 475.1  
Diluted earnings per share (Rs)**   4.4  
Price to earnings ratio (x)*   7.8  
(* on trailing twelve months earnings)
(**excluding extraordinary items)

What has driven performance in 1QFY14?
  • TVS' revenues fell by 5% YoY during the quarter led by poor performance of two-wheelers in the domestic market. Both scooters and motorcycle volumes dipped 7% YoY and 1% YoY respectively in the domestic market. Three wheelers also fared quite poorly as volumes were down by a substantial 36% YoY. As a result of this, total volumes in the domestic market declined by 7% YoY during the quarter. The overall poor performance was attributed to sluggish conditions in the auto industry on account of slowdown in the Indian economy. The only silver lining in the cloud was exports. Indeed, volumes of three wheelers in the export markets surged 160% YoY during the quarter as a result of which overall three wheeler volumes were up 90% YoY. Total volumes in the export markets were up by 12% YoY.

    Cost break-up...
    (Rs m) 1QFY13 1QFY14 Change
    Raw materials 13,611 12,518 -8.0%
    % sales 73.6% 71.1%  
    Staff cost 1,024 1,130 10.4%
    % sales 5.5% 6.4%  
    Other expenditure 2,784 2,970 6.7%
    % sales 15.1% 16.9%  
    Total expenses 17,419 16,618 -4.6%

  • TVS' operating profits fell by 8% YoY during the quarter, as operating margins shrunk by 0.2% YoY to 5.6%. This was on the back of higher staff costs and other expenditure (as a percentage of sales). Other expenditure stood at 16.9% of the company's revenues for 1QFY14 as compared to 15.1% in 1QFY13 on account of higher marketing spends.

  • Net profits, however, grew by 1.5% YoY led by higher other income and reduction in interest costs.

What to expect?
At the current price of Rs 34, the stock trades at a multiple of 7 times our estimated FY16 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. During the course of FY14, TVS plans to introduce a new motorcycle, two scooters as well as a diesel three wheeler. It has also planned upgrades across its product portfolio. However, it will continue to face pressure in the near term just like its peers on account of the slowdown in the Indian economy and competition intensifying in the two wheeler space. Overall, we recommend investors to 'Hold' on to the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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Jun 14, 2021 (Close)


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