Saturday, February 4, 2012

>TVS Motors: refreshes of Apache and Scooty coupled with 2 new model launches in the motorcycle segment & a new scooter (in FY13, timing not known)

Operating results better than estimates; Maintain Buy

TVS Motors’ (TVSL) 3QFY12 operating results were better than our expectations with EBITDA margin at 6.5% vs our estimate of 6.1%. Revenues at Rs17.6bn were higher than our estimate of Rs17.5bn, largely driven by higher-than-expected realizations (up 0.4% QoQ despite unfavourable product mix vs estimated drop of 0.2% QoQ). Though the other expenditure stood higher than our expectations, lower than expected pressure on input costs coupled with improved realizations helped the company report better than expected operating performance. As a result, PAT stood at Rs566mn, higher than our estimate of Rs513mn. Going
forward, we believe that refreshes of Apache and Scooty coupled with 2 new model launches in the motorcycle segment (one to be launched in May/June 2012 and the other in 2HFY13 in the executive segment) and a new scooter (in FY13, timing not known) will help the company in arresting market share loss and maintain decent volume growth. Post the recent correction in the stock price, we believe the downside is limited. We continue to maintain BUY rating with a revised target price of Rs70 (earlier Rs75, price cut in line with earnings cut).

 Operating results better than estimates; PAT beats expectation: TVS reported overall sales of Rs17.6bn (est.: Rs17.5bn), up 7% YoY led by volume growth of 1.5% and realization growth of 5.5%. On a sequential basis, sales declined by 12%, largely driven by a drop in volumes by 11.9% as realization improved marginally by 0.4%. EBITDA margins for 3QFY12 stood at 6.5% compared to our estimate of 6.1%. This was largely on account of better-than-expected revenues and mild savings in RMC, as it helped the company negate higher than expected increase in other expenditure. As a result, PAT for the quarter stood at Rs566mn (up 1% YoY but down 26%QoQ) vs. our estimate of Rs513mn.

 Other highlights: 1. Company raised prices by 1-3% in the domestic market during 3Q and 3.5% in the exports market; 2. During the quarter company invested Rs.258mn in PT Indonesia and did volumes of 4033 units (YTDFY12 investments in PT Indonesia stands at Rs.622mn and volumes are at 18,905 units); 3. It also made investments of Rs.150mn YTDFY12 in TVS Energy (60MW capacity is expected to be
commissioned by March 2012).

 Valuations and Recommendations: At the CMP of Rs53, the stock is trading at 9.5x FY12E EPS of Rs5.1 and 7.9x FY13E EPS of Rs6.1. We continue to maintain our BUY rating with a revised target price of Rs70 (earlier Rs75, price cut in line with earnings cut). We are factoring in negative value of Rs.3 for PT Indonesia.