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TVS Motor: Scooters lead the charge - Views on News from Equitymaster
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TVS Motor: Scooters lead the charge
Nov 4, 2011

TVS Motor announced the first quarter results of financial year 2011-2012 (2QFY12). The company reported a 23% YoY increase in revenues, while profits grew by 40% YoY. Here is our analysis of the results.

Performance summary
  • Revenues increase by 23% YoY during 2QFY12 led by higher sales of scooters, three wheelers and two wheeler exports.
  • Operating margins contract marginally by 0.3% YoY on the back of higher raw material costs (as a percentage of sales).
  • Profits rise by a healthy 40% YoY on the back of substantial fall in interest costs and depreciation charges.

Financial performance summary
(Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
Net sales 16,162 19,918 23.2% 30,092 37,378 24.2%
Expenditure 14,935 18,458 23.6% 27,827 34,665 24.6%
Operating profit (EBDITA) 1,227 1,460 19.0% 2,265 2,714 19.8%
EBDITA margin (%) 7.6% 7.3%   7.5% 7.3%  
Other income 25 23 -7.2% 67 23 -65.4%
Interest expense/(income) 142 112 -21.6% 312 227 -27.1%
Depreciation/ Amortisation 433 363 -16.2% 838 723 -13.8%
Profit before tax 677 1,009 49.0% 1,182 1,787 51.2%
Tax 130 244 87.5% 231 434 88.1%
Profit after tax/(loss) 547 765 39.9% 952 1,353 42.2%
Net profit margin (%) 3.4% 3.8%   3.2% 3.6%  
No. of shares (m)       237.5 475.1  
Diluted earnings per share (Rs)*         4.9  
Price to earnings ratio (x)*         13.7  
(* on trailing twelve months earnings)

What has driven performance in 2QFY12?
  • TVS' revenues increased by 23% YoY during the quarter. Total two wheeler sales saw a growth of 16% YoY in 2QFY12 with motorcycles sales growing at 15% YoY. What did very well, however, were scooters as volumes grew by a healthy 27% YoY. Two wheeler exports grew strongly by 31% YoY during the quarter and helped the company cushion the impact of a slowdown in the domestic market. As for sales of three-wheelers, after a very strong first quarter, volumes of these saw a relatively slower growth of 19% YoY during the quarter.

    Cost break-up...
    (Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
    Raw materials 11,716 14,731 25.7% 21,854 27,775 27.1%
    % sales 72.5% 74.0%   72.6% 74.3%  
    Staff cost 847 938 10.7% 1,576 1,847 17.2%
    % sales 5.2% 4.7%   5.2% 4.9%  
    Other expenditure 2,371 2,789 17.6% 4,397 5,043 14.7%
    % sales 14.7% 14.0%   14.6% 13.5%  
    Total expenses 14,934 18,458   27,827 34,665  

  • TVS' operating profits increased by 19% YoY, a tad slower as compared to the increase in revenues as expenses increased by 24% YoY. Operating margins dropped marginally by 0.3% YoY to 7.3% on the back of higher raw material expenses (as a percentage of sales). Raw material costs stood at 74% of the company's revenues for the quarter as compared to 72.5% in the corresponding quarter last year. For the half year period, operating margins contracted marginally by 0.2% leading to a 20% YoY growth in operating profits.

  • TVS' net profits rose by 40% 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. For the half year period, growth in net profits stood at 42% YoY.

What to expect?
At the current price of Rs 67, the stock trades at a multiple of 8.4 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. Although the overall auto industry in the fiscal so far has witnessed a slowdown on account of rising fuel prices and interest rates, the passenger vehicles segment has borne most of the brunt as the two wheeler industry including TVS Motors in contrast has performed much better. That said, operating margins could continue to remain under pressure going forward. The company has performed better than our estimates and we shall have to upgrade our numbers for the full year. Despite this, we maintain our cautious view on the stock.

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