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TVS Motor: Hit by fall in volumes - Views on News from Equitymaster

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TVS Motor: Hit by fall in volumes
Dec 5, 2012

TVS Motor announced the second quarter results of financial year 2012-2013 (2QFY13). The company reported a 15% YoY drop in revenues, while profits fell by 41% YoY. Here is our analysis of the results.

Performance summary
  • Revenues fall by 15% YoY during 2QFY13 largely due to a drop in volumes of two wheelers.
  • Operating margins fall by 0.9% YoY to 6% during 2QFY13 on the back of higher staff costs and other expenditure (as a percentage of sales).
  • Fall in operating profits trickles down to the bottomline, which also drops by 41% YoY.


Financial performance summary
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 19,913 16,906 -15.1% 37,364 35,175 -5.9%
Expenditure 18,535 15,894 -14.2% 34,824 33,016 -5.2%
Operating profit (EBDITA) 1,378 1,012 -26.5% 2,540 2,158 -15.0%
EBDITA margin (%) 6.9% 6.0%   6.8% 6.1%  
Other income 64 41 -35.2% 109 21 -80.9%
Interest expense/(income) 147 152 3.3% 299 307 2.7%
Depreciation/ Amortisation 286 320 11.9% 563 630 11.9%
Profit before tax 1,009 582 -42.3% 1,787 1,243 -30.5%
Tax 244 130 -46.7% 434 280 -35.5%
Profit after tax/(loss) 765 452 -40.9% 1,353 963 -28.8%
Net profit margin (%) 3.8% 2.7%   3.6% 2.7%  
No. of shares (m)       475.1 475.1  
Diluted earnings per share (Rs)*         4.4  
Price to earnings ratio (x)*         9.0  
(* on trailing twelve months earnings)

What has driven performance in 2QFY13?
  • TVS' revenues declined by 15% YoY during the quarter led by poor performance of two-wheelers. While scooter volumes declined by 25% YoY, the scenario for motorcycles was even worse as volumes dipped 31% YoY. The company was not spared on the exports front either as volumes fell 37% YoY. The only silver lining in the cloud was three wheelers as volumes managed to grow by 4% YoY. The overall poor performance was attributed to sluggish conditions in the auto industry on account of slowdown in the Indian economy, firm interest rates and higher fuel prices.

    Cost break-up...
    (Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Raw materials 14,808 12,228 -17.4% 27,935 25,591 -8.4%
    % sales 74.4% 72.3%   74.8% 72.8%  
    Staff cost 938 1,077 14.8% 1,847 2,101 13.7%
    % sales 4.7% 6.4%   4.9% 6.0%  
    Other expenditure 2,789 2,589 -7.2% 5,043 5,324 5.6%
    % sales 14.0% 15.3%   13.5% 15.1%  
    Total expenses 18,535 15,894 -14.2% 34,824 33,016 -5.2%

  • TVS' operating profits fell by 26.5% YoY during the quarter, as operating margins shrunk by 0.9% YoY to 6%. This was on the back of higher staff costs and other expenditure (as a percentage of sales). Staff costs stood at 6.4% of the company's revenues for 2QFY13 as compared to 4.7% in 2QFY12.

  • Fall in operating profits percolated down to the bottomline, which declined by 41% YoY during the quarter. Even a fall in tax expenses could not do much in lessening the impact.

What to expect?
At the current price of Rs 40, the stock trades at a multiple of 6 times our estimated FY15 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 which will increase realisations and profitability. The company expects exports to be a significant growth engine too although Sri Lanka could be a problem given that volumes for the industry have dipped there on account of a significant hike in import duty. Further, the company could continue to face pressure in the near term just like its peers on account of the slowdown in the Indian economy. That said despite some near term pressures, overall, we maintain our ‘Buy' view on the stock.

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