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TVS Motor: Healthy growth in profits - Views on News from Equitymaster
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TVS Motor: Healthy growth in profits
Nov 5, 2013

TVS Motor announced the second quarter results of financial year 2013-2014 (2QFY14). The company reported a 16% YoY and 97% YoY growth in revenues and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 16% YoY during 2QFY14, while volumes are up 4% YoY.
  • Operating margins remain stable at 5.9% resulting in the 16% YoY growth in operating profits.
  • Excluding the extraordinary income in 2QFY14, net profits grow by 30% YoY led by higher other income and significant reduction in interest costs.


Financial performance summary
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Net sales 17,124 19,884 16.1% 35,617 37,486 5.2%
Expenditure 16,113 18,713 16.1% 33,532 35,326 5.3%
Operating profit (EBDITA) 1,011 1,171 15.9% 2,086 2,160 3.6%
EBDITA margin (%) 5.9% 5.9%   5.9% 5.8%  
Other income 43 77 79.5% 93 158 69.5%
Interest expense/(income) 152 52 -65.7% 307 117 -61.7%
Depreciation/ Amortisation 320 314 -1.7% 630 629 -0.1%
Profit before tax 582 882 51.6% 1,243 1,572 26.5%
Exceptional items - 303   - 303  
Tax 130 296 128.1% 280 468 67.2%
Profit after tax/(loss) 452 888 96.6% 963 1,407 46.1%
Net profit margin (%) 2.6% 4.5%   2.7% 3.8%  
No. of shares (m)       475.1 475.1  
Diluted earnings per share (Rs)**         4.7  
Price to earnings ratio (x)*         11.0  
(* on trailing twelve months earnings)
(**excluding extraordinary items)

What has driven performance in 2QFY14?
  • TVS' revenues grew by 16% YoY and can be attributed to enhanced realisations especially in the export markets as overall volumes increased by only 4% YoY. As far as the segments are concerned, total two-wheeler volumes grew by a mere 2% YoY. In this, in the domestic market, while volumes of scooters fell by 3% YoY, motorcycle volumes managed to grow by a decent 18% YoY. Two wheeler exports did much better as volumes were up by a robust 27% YoY. Three wheelers did exceptionally well during the quarter with volumes up by 85% YoY. This was once again largely led by exports.

    Cost break-upů
    (Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Raw materials 12,472 14,149 13.4% 26,083 26,667 2.2%
    % sales 72.8% 71.2%   73.2% 71.1%  
    Staff cost 1,077 1,182 9.7% 2,101 2,312 10.0%
    % sales 6.3% 5.9%   5.9% 6.2%  
    Other expenditure 2,564 3,382 31.9% 5,348 6,347 18.7%
    % sales 15.0% 17.0%   15.0% 16.9%  
    Total expenses 16,113 18,713 16.1% 33,532 35,326 5.3%

  • TVS' operating profits grew by 16% YoY during the quarter, as operating margins remained stable at 5.9%. Lower raw material and staff costs were offset by higher other expenditure (as percentage of sales). Other expenditure stood at 17% of the company's revenues for 2QFY14 as compared to 15% in 2QFY13 on account of higher marketing spends.

  • Excluding the extraordinary income in 2QFY14, net profits grew by 30% YoY led by higher other income and significant reduction in interest costs. The company had divested its majority stake in TVS Energy Ltd and the profit on sale of this stake was recorded as extraordinary gain during the quarter.

What to expect?

At the current price of Rs 51, the stock trades at a multiple of 7.2 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 last quarter of FY14, TVS plans to introduce a new motorcycle and has planned two launches in FY15. During this quarter, the company had launched the scooter TVS Jupiter which has received good response so far. 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. The stock breached our target price and we have closed the position as highlighted in the StockSelect report of October 2013. Our view is that investors not buy the stock at current levels.

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