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TVS Srichakra 3QFY2014 performance highlights and results update

February 12, 2014, Wednesday, 07:53 GMT | 02:53 EST | 12:23 IST | 14:53 SGT
Contributed by Angel Broking

For 3QFY2014, TVS Srichakra (TVSSL) reported better-than-expected numbers on the operating profit and bottom-line front. The top-line grew by 14.8% yoy to Rs.416cr, in-line with our estimate of Rs.405cr. This can be majorly attributed to the better production numbers of Honda Motorcycle and Scooter India (HMSI). The operating margin expanded by 318bp yoy to 7.0%, on account of lower raw material cost and other expenses. The other income for the quarter was negligible and the tax expense was Rs.2cr, which is only 15.1% of PBT. Consequently, the company reported a profit of Rs.11cr in the quarter against as loss of Rs.3cr in same quarter last year.
Amidst the slowdown, HMSI’s strong production aids TVSSL growth After an extended downtrend in 2W and 3W sales amidst a weak demand scenario, coupled with dampening consumer sentiments, the 2W industry continues to show revival signs in 3QFY2014 with a growth of 14.0% yoy. The major OEM consumer of the company, HMSI, whose production registered a growth of 47.0% on a yoy basis, has aggressive plans for future in terms of new product launches, which is expected to drive its sales growth and thus help TVSSL’s revenue growth.
Outlook and valuation: Due to the challenging near term environment for the automotive sector, we remain cautious on the company’s performance. We expect the top-line of the company to grow at a CAGR of 10.0% over FY2013-15E to Rs.1,781cr mainly driven by volume growth. Though we expect revenue from OEMs to be strong, backed by strong performance of HMSI, we remain conservative on revenues from the replacement market. We expect the operating margin to be 6.6% with a profit of Rs.39cr for FY2015E. We maintain our target price of Rs.309 and recommend Buy on the stock based on a target PE of 6.0x for FY2015E.