Q3FY2011 Update

Sector: Auto
RESEARCH
BSE Sensex: 19,047
BUY
TVS MOTOR CMP Rs62
TP Rs94

20 January 2011
Working Capital Efficiency Neutralises Input Cost
Vineet Hetamasaria, CFA
TVS Motor (TVSL) performance for Q3FY11 fell short of our vineet.hetamasaria@pinc.co.in
expectation with reported profit 7% lower than our expectation +91-22-6618 6388
of Rs598mn. Increase in raw material cost led to a sequential
decline in margins to 6.1%. However, lower interest cost and Nikhil Deshpande
higher other income helped PAT more than double to nikhil.deshpande@pinc.co.in
Rs558mn. +91-22-6618 6339

Volume growth across segments: Overall volumes jumped 39.8%

to 524k units with growth across all segments. Domestic motorcycle
volumes were up 44% as against an industry growth of 15.6% gaining
170bps marketshare. Success of the Wego led to a 64% surge in QUARTERLY SNAPSHOT (Rs mn)
scooter volumes. Inspite of the impressive growth in the segment Quarter Ended
marketshare gain was restricted to 100bps as the segment growth Jun-10 Sep-10 Dec-10
was 56%. Moped volumes were up 27%. Two-wheeler exports were Net Sales 13,930 16,162 16,467
up 17.6%. Three-wheeler sales crossed the 10k mark for the quarter. YoY Gr. (%) 40.9 43.0 51.1
EBITDA 898 1,075 1,006
Margins under pressure: A richer product mix due to higher
EBITDA mar. (%) 6.4 6.7 6.1
contribution of motorcycles and three wheelers aided a 2% QoQ
Adj. Net Profit 404 548 558
Result Review

growth in realisations to Rs31.4k/unit. However, raw material cost

YoY Gr. (%) 122.8 123.1 136.9
per vehicle increased by 3% denting margins. Operating margins
contracted 50bps sequentially to 6.1% and were lower than our
estimate of 7%.
STOCK DATA
Lower interest costs boost profits: Reduction in working capital Market Cap Rs29.5bn
resulted in a 46.7% YoY decline in interest cost to Rs96mn. Book Value per share Rs17.6
Consequently reported profits surged 137% to Rs558mn. Eq Shares O/S (F.V. Rs1) 475mn
Outlook: We estimate TVSL to achieve volumes of 2mn and Free Float 39.6%
2.3mn units during FY11 and FY12 respectively. We expect Avg Traded Val. (6 mnts) Rs286.3mn
profitability to be maintained in the range of 7%. Our earnings 52 w eek High/Low Rs87/29
estimate for FY11 and FY12 are unchanged at Rs4.5 and Rs5.9 Bloomberg Code TVSL IN
respectively. Reuters Code TVSM.BO

VALUATIONS AND RECOMMENDATION

The stock is currently trading at 10.6x FY12E standalone earnings. PERFORMANCE (%)
We maintain a ‘BUY’ rating on the stock with a target price of Rs94 1M 3M 12M
discounting FY12E earnings 16x. Absolute (12.7) (17.6) 58.0
KEY FINANCIALS (Rs mn) Relative (8.5) (11.6) 49.0
FY08 FY09 FY10 FY11E FY12E
Net Sales 32,195 36,709 43,631 63,017 71,090
YoY Gr.(%) (16.5) 14.0 18.9 44.4 12.8 RELATIVE PERFORMANCE
EBITDA 440 1,211 2,094 3,683 4,473
TVSL BSE
EBIDTA Margin (%) 2.9 5.0 6.2 6.9 7.3 85
Adjusted Net Profit 318 311 1,092 2,145 2,791
YoY Gr.(%) (52.1) (2.2) 251.3 96.5 30.1 70
KEY RATIOS
55
Dil. EPS (Rs) 0.7 0.7 2.3 4.5 5.9
ROCE (%) 2.9 5.4 9.6 16.5 19.0 40
RoE (%) 4.2 4.1 13.9 22.9 24.0
PER (x) 92.7 94.8 27.0 13.7 10.6 25
EV/Net sales (x) 1.1 1.0 0.8 0.5 0.4 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11
EV/EBDITA (x) 37.3 19.9 12.8 7.6 5.8
PINC Research reports are also available on Reuters, Thomson Publishers and Bloomberg PINV <GO> 1
 RESEARCH

TVS Motor

Financial Table
(Rs m n) Dec-10 Dec-09 YoY (%) Sep-10 QoQ (%) 9MFY11 9MFY10 YoY (%)
Net Sales 16,467 10,895 51.1 16,162 1.9 46,559 32,080 45.1
EBIDTA 1,006 682 47.5 1,075 (6.4) 2,979 1,931 54.3
EBIDTA Margins % 6.1 6.3 -10 bps 6.7 -50 bps 6.4 6.0 40 bps
Other Income 72 6 1211.5 25 190.0 140 30 364.0
Interest 96 180 (46.7) 142 (32.5) 408 505 (19.2)
Depreciation 279 253 10.4 280 (0.2) 825 760 8.5
PBT 703 254 176.7 678 3.7 1,885 696 170.9
Tax 145 19 677.5 130 11.9 376 34 1013.0
% PBT 20.7 7.4 1330 bps 19.2 150 bps 20.0 4.9 1510 bps
Reported PAT 558 235 136.9 548 1.8 1,509 662 127.9
Adjusted PAT 558 235 136.9 548 1.8 1,509 662 127.9
Adjusted EPS (Rs) 1.2 0.5 136.9 1.2 1.8 3.2 1.4 127.9

Vehicle sales
(units) Dec-10 Dec-09 YoY (%) Sep-10 QoQ (%) 9MFY11 9MFY10 YoY (%)
Total Sales 524,102 374,799 39.8 524,954 (0.2) 1,512,896 1,118,116 35.3
Domestic 467,632 330,769 41.4 462,949 1.0 1,338,500 1,007,350 32.9
Exports 56,470 44,030 28.3 62,005 (8.9) 174,396 110,766 57.4
Total Tw o Wheeler Sales 514,063 371,574 38.3 514,998 (0.2) 1,485,102 1,109,387 33.9
Domestic 462,669 327,878 41.1 456,538 1.3 1,321,204 999,255 32.2
Exports 51,394 43,696 17.6 58,460 (12.1) 163,898 110,132 48.8
Motorcycles 208,642 151,127 38.1 209,006 (0.2) 618,006 458,589 34.8
Domestic 161,930 112,307 44.2 157,216 3.0 471,360 360,374 30.8
Exports 46,712 38,820 20.3 51,790 (9.8) 146,646 98,215 49.3
Scooters 122,696 74,960 63.7 124,356 (1.3) 342,538 228,925 49.6
Domestic 118,985 72,524 64.1 119,028 (0.0) 330,208 221,418 49.1
Exports 3,711 2,436 52.3 5,328 (30.3) 12,330 7,507 64.2
Mopeds 182,725 145,487 25.6 181,636 0.6 524,558 421,873 24.3
Domestic 181,754 143,047 27.1 180,294 0.8 519,636 417,463 24.5
Exports 971 2,440 (60.2) 1,342 (27.6) 4,922 4,410 11.6
Three Wheelers 10,039 3,225 211.3 9,956 0.8 27,794 8,729 218.4
Domestic 4,963 2,891 71.7 6,411 (22.6) 17,296 8,095 113.7
Exports 5,076 334 1419.8 3,545 43.2 10,498 634 1555.8

(%) of Sales
(%) Dec-10 Dec-09 YoY (bps) Sep-10 QoQ (bps) 9MFY11 9MFY10 YoY (bps)
Material cost 73.2 70.5 270 72.5 70 72.8 71.0 180
Staff cost 5.3 5.8 (50) 5.2 0 5.3 5.4 (20)
Other expenses 15.5 17.5 (200) 15.6 (20) 15.5 17.5 (200)
EBIDTA m argins 6.1 6.3 (10) 6.7 (50) 6.4 6.0 40

Per Vehicle
(Rs) Dec-10 Dec-09 YoY (%) Sep-10 QoQ (%) 9MFY11 9MFY10 YoY (%)
Realisations 31,419 29,068 8.1 30,788 2.0 30,774 28,691 7.3
Material cost 22,984 20,486 12.2 22,318 3.0 22,408 20,379 10.0
Staff cost 1,656 1,673 (1.0) 1,614 2.6 1,616 1,553 4.1
Other expenses 4,858 5,089 (4.5) 4,809 1.0 4,782 5,033 (5.0)
EBIDTA 1,957 1,835 6.7 2,087 (6.2) 2,006 1,740 15.2

vineet.hetamasaria@pinc.co.in nikhil.deshpande@pinc.co.in 2
 RESEARCH

TVS Motor

Product Mix Domestic Marketshare

Net Sales EBIDTA

Net Profits Profitability Trend

vineet.hetamasaria@pinc.co.in nikhil.deshpande@pinc.co.in 3
 RESEARCH

TVS Motor
Year Ended March (Figures in Rs mn)

Incom e Statement FY08 FY09 FY10 FY11E FY12E Cash Flow Statem ent FY08 FY09 FY10 FY11E FY12E
Net sales 32,195 36,709 43,631 63,017 71,090 Pre-tax profit 354 311 899 2,681 3,489
Growth (%) (16.5) 14.0 18.9 44.4 12.8 Depreciation 886 949 840 1,151 1,224
Operating profit 440 1,211 2,094 3,683 4,473 Total tax paid (168) 30 (220) (569) (737)
Other operating income 507 665 670 704 739 Chg in w orking capital (1,014) (412) 982 266 142
EBITDA 947 1,875 2,764 4,387 5,212 Other operating activ ities - - - - -
Growth (%) (48.8) 97.9 47.4 58.7 18.8 Cash flow from oper. (a) 57 878 2,502 3,529 4,118
Depreciation (965) (1,033) (1,044) (1,151) (1,224) Capital ex penditure (1,287) (883) (304) (1,230) (850)
Other income 486 115 145 185 210 Chg in inv estments (258) (1,273) (460) - -
EBIT 468 957 1,865 3,421 4,199 Other inv esting activ ities - - - - -
Interest paid (115) (646) (754) (740) (710) Cash flow from inv. (b) (1,545) (2,156) (764) (1,230) (850)
PBT (before E/o items) 354 311 1,111 2,681 3,489 Free cash flow (a+b) (1,488) (1,278) 1,737 2,299 3,268
Tax prov ision (36) (0) (19) (536) (698) Equity raised/(repaid) - - - - -
E/o Income / (loss) - - (212) - - Debt raised/(repaid) 328 2,396 973 (633) (1,300)
Net profit 318 311 880 2,145 2,791 Chg in Minorities int. - - - - -
Adjusted net profit 318 311 1,092 2,145 2,791 Div idend (incl. tax ) (42) (195) (389) (301) (333)
Growth (%) (52.1) (2.2) 251.3 96.5 30.1 Other financing activ ities 58 (426) 424 190 110
Diluted EPS (Rs) 0.7 0.7 2.3 4.5 5.9 Cash flow from fin. (c) 344 1,776 1,007 (744) (1,523)
Diluted EPS Growth (%) (52.1) (2.2) 251.3 96.5 30.1 Net chg in cash (a+b+c) (1,144) 498 2,745 1,556 1,744

Balance Sheet FY08 FY09 FY10 FY11E FY12E Key Ratios FY08 FY09 FY10 FY11E FY12E
Equity capital 238 238 238 475 475 EBITDA margin (%) 2.9 5.0 6.2 6.9 7.3
Reserves & surplus 7,978 7,864 8,416 9,989 12,447 Net margin (%) 1.0 0.8 2.5 3.4 3.9
Shareholders' funds 7,688 7,378 8,353 10,354 12,922 Div idend y ield (%) 0.6 0.6 1.0 1.0 1.0
Preference Share Capital - - - - - Net debt/Equity (x ) 0.8 1.1 0.7 0.4 0.1
Total Debt 6,663 9,060 10,033 9,400 8,100 Net Working Capital (day s) (2) (7) (16) (9) (9)
Capital Employed 14,352 16,438 18,386 19,754 21,022 Asset turnov er (x ) 1.5 1.6 1.7 2.1 2.2
Net fix ed assets 10,431 10,364 9,828 9,906 9,533 ROCE (%) 2.9 5.4 9.6 16.5 19.0
Cash & Cash Eq. 759 1,257 4,002 5,557 7,301 RoE (%) 4.2 4.1 13.9 22.9 24.0
Net other Current Assets 2,043 2,358 1,301 995 853 EV/Net sales (x ) 1.1 1.0 0.8 0.5 0.4
Inv estments 2,668 3,941 4,401 4,401 4,401 EV/EBITDA (x ) 37.3 19.9 12.8 7.6 5.8
Net Deferred Tax Assets (1,549) (1,481) (1,146) (1,106) (1,067) PER (x ) 92.7 94.8 27.0 13.7 10.6
Total assets 14,352 16,438 18,386 19,754 21,022 Price/Book (x ) 3.8 4.0 3.5 2.8 2.3

P/E Band EV/EBIDTA

100 18X 60,000 12X

15X 10X
75 45,000
12X 8X

50 9X 30,000 6X

6X 4X
25 15,000

0 0
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

vineet.hetamasaria@pinc.co.in nikhil.deshpande@pinc.co.in 4
 RESEARCH

T E A M
EQUITY DESK
Sadanand Raje Head - Institutional Sales sadanand.raje@pinc.co.in 91-22-6618 6366
Technical Analyst

RESEARCH
Vineet Hetamasaria, CFA Auto, Cement vineet.hetamasaria@pinc.co.in 91-22-6618 6388
Nikhil Deshpande Auto, Auto Ancillary, Cement nikhil.deshpande@pinc.co.in 91-22-6618 6339
Vinod Nair Construction, Power, Capital Goods vinod.nair@pinc.co.in 91-22-6618 6379
Ankit Babel Capital Goods ankit.b@pinc.co.in 91-22-6618 6551
Hitul Gutka Power hitul.gutka@pinc.co.in 91-22-6618 6410
Subramaniam Yadav Construction subramaniam.yadav@pinc.co.in 91-22-6618 6371
Madhura Joshi Power madhura.joshi@pinc.co.in 91-22-6618 6395
Satish Mishra Fertiliser, Engineering satish.mishra@pinc.co.in 91-22-6618 6488
Urvashi Biyani Fertiliser, Engineering urvashi.biyani@pinc.co.in 91-22-6618 6334
Naveen Trivedi FMCG naveent@pinc.co.in 91-22-6618 6384
Rohit Kumar Anand IT Services rohit.anand@pinc.co.in 91-22-6618 6372
Karan Taurani IT Services karan.taurani@pinc.co.in 91-22-6618 6382
Namrata Sharma Media namrata.sharma@pinc.co.in 91-22-6618 6412
Ronak Bakshi Media ronak.bakshi@pinc.co.in 91-22-6618 6411
Bikash Bhalotia Metals, Mining bikash.bhalotia@pinc.co.in 91-22-6618 6387
Harleen Babber Metals, Mining harleen.babber@pinc.co.in 91-22-6618 6389
Dipti Vijaywargi Metals, Mining dipti.vijaywargi @pinc.co.in 91-22-6618 6393
Sushant Dalmia, CFA Pharma sushant.dalmia@pinc.co.in 91-22-6618 6462
Suman Memani Real Estate, Mid caps suman.memani@pinc.co.in 91-22-6618 6479

SALES
Rajeev Gupta Equities rajeev.gupta@pinc.co.in 91-22-6618 6486
Himanshu Varia Equities himanshu.varia@pinc.co.in 91-22-6618 6342
Shailesh Kadam Derivatives shaileshk@pinc.co.in 91-22-6618 6349
Ganesh Gokhale Derivatives ganeshg@pinc.co.in 91-22-6618 6347

DEALING
Mehul Desai Head - Sales Trading mehul.desai@pinc.co.in 91-22-6618 6303
Naresh Panjnani Co-Head - Sales Trading naresh.panjnani@pinc.co.in 91-22-6618 6333
Amar Margaje amar.margaje@pinc.co.in 91-22-6618 6327
Ashok Savla ashok.savla@pinc.co.in 91-22-6618 6321
Sajjid Lala sajjid.lala@pinc.co.in 91-22-6618 6337
Raju Bhavsar rajub@pinc.co.in 91-22-6618 6322
Kinjal Mehta kinjal.mehta@pinc.co.in 91-22-6618 6333
Chandani Bhatia chandani.bhatia@pinc.co.in 91-22-6618 6324
Hasmukh D. Prajapati hasmukhp@pinc.co.in 91-22-6618 6325
Kamlesh Purohit kamlesh.purohit@pinc.co.in 91-22-6618 6357

SINGAPORE DESK
Amul Shah amul.shah@sg.pinc.co.in 0065-63270626/27/28

DIRECTORS
Gaurang Gandhi gaurangg@pinc.co.in 91-22-6618 6400
Hemang Gandhi hemangg@pinc.co.in 91-22-6618 6400
Ketan Gandhi ketang@pinc.co.in 91-22-6618 6400

COMPLIANCE
Rakesh Bhatia Head Compliance rakeshb@pinc.co.in 91-22-6618 6400
 Infinity.com
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