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TVS Motor Company 4QFY2014 performance highlights and results update

May 1, 2014, Thursday, 03:31 GMT | 23:31 EST | 08:01 IST | 10:31 SGT
Contributed by Angel Broking


TVS Motor Company (TVSL) reported strong results for 4QFY2014 led by continued momentum on the exports front (volumes up 32.8% yoy), strong growth in scooter sales (38.3% yoy) backed by Jupiter, and a favorable product-mix. Adjusted EBITDA margins, at 6.9%, surpassed expectations led by operating leverage benefits and cost reduction efforts. We expect the company to continue reporting improvement in its performance going ahead given that a) its new scooter launch, Jupiter, has been accepted well by the markets b) and that the slew of product launches that are lined up for FY2015 (Scooty Zest, Star City Plus, Victor, new premium motorcycle and refreshes of Wego and Apache) will likely aid volume growth. Additionally, strong focus on exports and entry into Nigerian market should enable the company to continue its momentum on the exports front. We expect operating margins to improve driven by improving product-mix, better exports realization and operating leverage benefits. We broadly maintain our revenue estimates, while we raise our EBITDA margin estimates by ~30bp each in FY2015E/16E, leading to earnings upgrade of 4.6%/7.7% respectively. We recommend a Buy rating on the stock.

Strong 4QFY2014 performance: Top-line grew strongly by 21.4% yoy to Rs.2,156cr, slightly lower than our estimates of Rs.2,200cr. The marginal miss on the top-line was primarily due to lower-than-expected growth in net average realization. Overall, top-line performance was aided by 10.1% and 9.9% yoy growth in volumes and net average realization respectively. The volume performance benefitted from the launch of the new Jupiter which led to a 38% yoy growth in scooter volumes, and from continued traction on the exports front where the volumes surged 32.8% yoy during the quarter. The reported EBITDA margin expanded 115bp yoy (43bp qoq) to 6.4%, in-line with our estimate of 6.3%, driven by a superior product-mix, operating leverage benefits and cost reduction initiatives. One time dealer compensation expense stood at Rs.11cr, impacting margins by ~50bp; adjusted for which, the EBITDA margin stood at 6.9%. Led by a strong operating performance, the adjusted net profit grew firmly by 40.8% yoy to Rs.82cr, marginally higher than our expectations of Rs.79cr.

Outlook and valuation: Despite a strong ~90% up-move in the stock price over the past six months, the stock is trading attractively at 10.7x FY2016E earnings. We recommend a Buy rating on the stock with a target price of Rs.107.

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