TVS-20111103-BRICS-RR-4

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					Auto I September 2011 Quarter Review                                  3 November 2011




TVS Motor                                                                           BUY
 Results in-line with estimates                                               CMP: Rs64              Target Price: Rs80
TVS Motor’s Q2FY12 results were in-line with estimates. Net sales                KEY DATA
was up 23% yoy and 14% qoq at Rs19,918mn (1% above our est),                     Bloomberg                            TVSL IN
while PAT was up 40% yoy and 30% qoq at Rs765mn (2% above                        Reuters                            TVSM.BO
                                                                                 52-wk H/L (Rs)                         88/44
est). EBIDTA margin was at 7.3% (our est 7.6%) as compared to 7.6%
                                                                                 6-m avg trd value                 US$2.3mn
in Q2FY11 and 7.2% in Q1FY12.
                                                                                 Market cap                Rs31.5bn/US$0.6bn
23% sales growth on account of higher volume and realisations: Net               Shares o/s                          475.1mn
                                                                                 Face value                              Re1
sales reported growth of 23% yoy (in-line with our estimates) due to
                                                                                 Source: Bloomberg
volumes growth of 15% yoy and 13% qoq at 604,229 units and realisation
growth of 7% yoy and 1% qoq to Rs32,964. Realisation growth was led by
                                                                                SHAREHOLDING (%)
price hike taken by the company in July. We expect post festive season
sales to moderate for the overall two-wheeler industry, but TVS will
continue to outperform industry mainly due to higher growth expected in
scooters and mopeds segment. Currently, the company sells ~20,000
units per month of Wego and with the launch of new scooter we expect
the growth momentum for scooters to continue in H2FY12 (up 25%
in H1FY12).                                                                     Source: CMIE         As of 30 September 2011


Margin at 7.3%: EBITDA margin for Q2FY12 was 7.3% (our est was                  RELATIVE PRICE PERFORMANCE
7.6%), up 15bps qoq. Though raw material cost declined from 74.7% in
Q1FY12 to 74% in Q2FY12 (%age to net sales) and employee cost went
down from 5.21% in Q1FY12 to 4.71% in Q2FY12 (%age to net sales),
other expenditure went up significantly from 12.9% in Q1FY12 to 14% in
Q2FY12 mainly due to higher selling expenditure during festive season.
Reported PAT was at Rs765mn (2% above our est).

Key highlights:                                                                 Source: Bloomberg

•   Other expenditure scaled up in Q2FY12 compared to Q1FY12 on                 Key financials                            (Rs mn)
    account of higher selling and distribution expenses that had come            Y/E Mar               FY11E    FY12E      FY13E
    down significantly in Q1FY12.                                                Sales                 58,207   70,739     83,105
                                                                                 EBITDA                 4,096     5,339     6,116
•   All the export markets like Latin America and Indonesia are doing well.      EBITDA %                 7.0       7.5         7.4
    Recently (Q1FY12) TVS entered into Columbian two wheeler market.             Net profit             2,036     2,905     3,491
                                                                                 FDEPS (Rs)               4.0       6.2         7.7
•   In October 2011, retail sales for the company were robust at more
                                                                                 EPS growth (%)         119.5      52.0        24.7
    than 250,000 units on back of festive demand.
                                                                                 P/E (x)                 16.4      10.8         8.7
                                                                                 RoCE (%)                15.5      19.5        20.3
•   TVS’ plant was shut for 7-8 days in October due to Diwali and
                                                                                Source: Company, BRICS Research
    maintenance. The company expects November and December to
    register wholesale sales of more than 0.2mn units each.

•   The current capacity of the company stands at 3mn units. The                Umesh Karne
                                                                                +91 22 66360050
    company may plan to expand its capacity in FY13.
                                                                                umesh.karne@bricssecurities.com

•   TVS expects two-wheeler industry to grow at 15% for FY12 and TVS            Sagar Thakker
                                                                                +91 22 66360052
    will grow in-line with the industry.                                        sagar.thakker@bricssecurities.com


BRICS Securities Limited
TVS Motor                                                                                 3 November 2011



                           Physical performance
                           Particulars                           Q2FY12                Q2FY11                    yoy             Q1FY12                     qoq
                           Volume (units)                        604,229                524,954                15.1%             536,130                12.7%
                           Realization (Rs/Vehicle)                32,964                30,788                 7.1%                32,567                  1.2%
                           Motorcycles (units)                   238,744                209,006                14.2%             215,051                11.0%
                           Scooterate (units)                    157,465                124,356                26.6%             117,523                34.0%
                           Mopeds (units)                        196,337                181,636                 8.1%             192,133                    2.2%
                           Three Wheelers (units)                  11,683                 9,956                17.3%                11,423                  2.3%
                           Total (units)                         604,229                524,954                15.1%             536,130                12.7%
                           Exports (units)                         84,499                62,005                36.3%                77,802                  8.6%
                           Source: Company


                           September 2011 quarter performance                                                                                       (Rs mn)
                           Particulars             Q2FY12     Q2FY12          Difference          Q2FY11                yoy %        Q1FY12            qoq %
                                                    actual    estimate                   %
                           Sales                    19,918      19,816                0.5%         16,162               23.2%          17,460           14.1%
                           EBITDA                    1,460       1,510               -3.3%          1,228               18.9%           1,254           16.4%
                           EBITDA %                  7.3%        7.6%               (29bps)         7.6%            (27bps)             7.2%            15bps
                           Depreciation                 2              2             -3.4%                 3            -32.0%                2        -11.5%
                           Other income                23              -                  -            25                -7.2%                 -               -
                           PBT                       1,009       1,014               -0.5%            678               48.8%            778            29.6%
                           Tax                        244          264               -7.6%            130               87.5%            191            27.8%
                           PAT                        765          750                2.0%            548               39.7%            588            30.2%
                           EPS (Rs)                    1.6         1.6                2.0%            1.2               39.7%                1.2        30.2%
                           Source: Company, BRICS Research


                           EBITDA per unit on a steady rise                                                                                  (Rs per unit)
                             3,000
                                                                                                   2,339                               2,339        2,416
                             2,500
                                                      1,982                 1,952      1,938                    1,919
                             2,000         1,792               1,819                                                        1,710

                             1,500

                             1,000

                                 500

                                   -
                                       Q1FY10        Q2FY10   Q3FY10       Q4FY10     Q1FY11      Q2FY11       Q3FY11     Q4FY11      Q1FY12       Q2FY12

                           Source: Company, BRICS Research


                           Outlook and valuation: We expect 19% scooter volume CAGR and 24% three-
                           wheeler volume CAGR over FY11-13 led by higher demand. We expect better product
                           mix (higher scooter and three-wheeler sales) and improving operational efficiency (focus
                           on cost and procurement management) to lead to 51bps improvement in margin to
                           7.5% in FY12. The stock trades at 11x FY12E EPS of Rs6.2 and 9x FY13E EPS of
                           Rs7.7. Maintain Buy with target price of Rs80 (13x FY12E).




BRICS Securities Limited                                                                                                                                           2
  TVS Motor                                                                                  3 November 2011



Financial summary
Income statement                                              (Rs mn)     Balance sheet                                               (Rs mn)
Y/E 31 March                    2010       2011     2012E       2013E     Y/E 31 March                      2010      2011   2012E      2013E
Revenue                       44,240     58,207     70,739      83,105    Net fixed assets                10,041    10,123    9,899      9,556
Revenue growth (%)              20.5       31.6       21.5        17.5    Investments                      4,777     4,777    4,777      4,777
Operating exp                 41,440     54,111     65,400      76,989    Current assets                  11,681    15,233   19,478     24,420
EBITDA                         2,800      4,096      5,339       6,116     Inventories                     5,607     6,781    8,207      9,682
EBITDA margin (%)                6.3        7.0        7.5         7.4     Sundry debtors                  1,229     1,455    1,768      2,078
Depreciation                   1,023      1,117      1,225       1,342     Cash & bank balance               634     1,455    2,768      4,747
EBIT                           1,777      2,979      4,114       4,774     Loans & advances                4,212     5,542    6,735      7,912
MTM profit / (loss)               —          —          —           —     Other current assets                 —        —        —          —
Other income                      74        382        320         392    Total assets                    27,252    30,887   34,907     39,506
Interest paid                    628        610        561         512    Net worth                        9,238    10,892   13,415     16,523
PBT                            1,224      2,751      3,874       4,654    Share capital                      238       475      475        475
Tax                            (104)        715        968       1,164    Reserves & surplus               9,001    10,417   12,940     16,048
PAT                            1,328      2,036      2,905       3,491    Minority interest                    —        —        —          —
Minority interest                 —          —          —           —     Total debt                       9,060     8,360    7,660      6,960
EO income                        452         —          —           —     Secured loans                    2,836     2,836    2,836      2,836
APAT                             876      2,036      2,905       3,491    Unsecured loans                  6,224     5,524    4,824      4,124
PAT growth (%)                 347.4       53.3       42.7        20.1    Current liabilities & prov       7,473    10,154   12,352     14,543
Shares o/s (mn)                  475        475        475         475    Current liabilities              7,482     9,319   11,263     13,259
Fully diluted o/s shrs (mn)      475        475        475         475    Provisions                          (9)      835    1,088      1,283
FDEPS (Rs) recurring             1.8        4.0        6.2         7.7    Net deferred tax liab            1,481     1,481    1,481      1,481
                                                                          Total liabilities               27,252    30,887   34,907     39,506
Cash flow statement                                           (Rs mn)
Y/E 31 March                     2010       2011     2012E       2013E
                                                                          Key ratios
PBT                             1,224      2,751      3,874       4,654
Depreciation                    1,023      1,117      1,225       1,342   Y/E 31 March                     2010       2011   2012E      2013E
Amortisation                        —          —         —           —    Valuation ratios
Interest paid                       —          —         —           —    PE (x)                           36.0       16.4     10.8        8.7
Tax paid                            —          —         —           —    CEPS (Rs)                         4.9        6.6      8.7       10.2
Chg in working capital        (1,217)        (49)     (735)       (771)   PCE (x)                          13.4       10.0      7.6        6.5
Int/div in other income             —          —         —           —    BVPS (Rs)                          19         23       28         35
Other operations                    —          —         —           —    Price/Book (x)                    3.4        2.9      2.4        1.9
CF from operations (a)          1,762      3,714      3,955       4,574   EV/EBITDA (x)                    13.5        8.9      6.4        5.2
Capital expenditure             (700)    (1,200)    (1,000)     (1,000)   EV/Revenue (x)                    0.9        0.6      0.5        0.4
Chg in investments                  —          —         —           —    Dividend yield (%)                1.1        1.1      1.1        1.1
Other investing act                 —          —         —           —    Cash flow yield (%)               7.8       15.6     15.7       17.7
Int/div in other income             —          —         —           —    Performance ratios
CF from investments (b)         (700)    (1,200)    (1,000)     (1,000)   Raw material to sales (%)        71.7       70.4     70.3       70.8
Free cash flow (a+b)            2,462      4,914      4,955       5,574   SGA to sales (%)                    —         —        —          —
Equity raised/(repaid)              —          —         —           —    Effective tax rate (%)           (8.5)      26.0     25.0       25.0
Debt raised/(repaid)                —      (700)      (700)       (700)   PAT margin (%)                     3.0       3.5      4.1        4.2
Interest paid                   (628)      (610)      (561)       (512)   DPS (Rs)                           0.7       0.7      0.7        0.7
Dividend (incl tax)             (191)      (382)      (382)       (382)   Dividend payout ratio (%)           38        17       11          9
Other fin activities              (30)         —         —           —    Return ratios
CF from financing (c)           (849)    (1,692)    (1,643)     (1,594)   RoE avg (%)                      10.1       20.2     23.9       23.3
Net chg in cash (a+b+c)           213        822      1,312       1,980   RoCE avg (%)                      9.7       15.5     19.5       20.3
Opening balance                   421        634      1,455       2,768   Fixed asset turnover (x)           —          —        —          —
Closing balance                   634      1,455      2,768       4,747   Working capital ratios
                                                                          Inventory (days)                     65       60       60         60
                                                                          Payable (days)                       62       58       58         58
                                                                          Receivable (days)                    10        9        9          9
                                                                          Working capital (days)               13       11       11         11
                                                                          Leverage ratios
                                                                          Interest cost (%)                  —          —        —          —
                                                                          Net debt/equity (x)               0.9        0.6      0.4        0.1
                                                                          Interest coverage (x)             2.8        4.9      7.3        9.3




  BRICS Securities Limited                                                                                                                3
TVS Motor                                                                             3 November 2011




                                             BRICS RECOMMENDATION SCALE


                                 BUY:            More than 15% upside
                                 ADD:            Upside up to 15% (between 0% and 15%)
                                 REDUCE:         Downside up to 15% (between 0% and –15%)
                                 SELL:           More than 15% downside


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BRICS Securities Limited                                                                                                                  4

				
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