TVS Motor Company 3QFY2014 performance highlights and results update
January 31, 2014, Friday, 09:51 GMT | 04:51 EST | 14:21 IST | 16:51 SGT
TVS Motor Company (TVSL) posted strong 3QFY2014 results, which were broadly in-line with our estimates, led by a strong exports performance (volumes up 26.1% yoy and revenues up 69.2% yoy) and superior product-mix. We expect the company’s performance to improve going ahead given that its new scooter launch, Jupiter, has been accepted well by the markets. The company further intends to launch one more scooter (upgraded Scooty) to consolidate its position in the segment. Additionally, the volumes would also get a boost from the new launches in the motorcycle segment (new Victor), strong focus on exports and entry into Nigerian market. Additionally, operating margins are expected to remain stable, despite an expected increase in promotional activity, driven by improving product-mix and better exports realization. We broadly retain our FY2014E/15E revenue and earnings estimates for the company. Nonetheless, we believe that the strong outperformance by the stock (gains in excess of 100%) in the last six month factors most of the positives and leaves limited upside potential. We therefore maintain our Neutral rating on the stock.
3QFY2014 results in-line with estimates: The company’s top-line for the quarter grew by a strong 13% yoy (3.5% qoq) to Rs.2,058cr, in-line with our estimates of Rs.2,051cr, on the back of an impressive 12.7% yoy (1.7% qoq) growth in net average realization. The net average realization was aided by superior product-mix (higher share of scooters, three-wheelers and exports) and also due to better realization on the exports front. Total volumes though remained flat due to weakness in the domestic segment which witnessed a volume decline of 3.1% yoy. EBITDA margins remained stable on a sequential as well as yoy basis at 6%, in-line with our estimates of 6.1%. On a yoy basis, the impact of increase in raw-material cost as a percentage of sales (~160bp) was mitigated by increase in other expenditure (~120bp) & employee expense (~30bp) as a percentage of sales, leading to flat margins. Driven by a strong operating performance and sharp decline in finance cost, the adjusted net profit grew strongly by 31.2% yoy (17.5% qoq) to Rs.69cr.
Outlook and valuation: At Rs.71, the stock is trading at 10.6x FY2015E earnings. We maintain our Neutral rating on the stock.