Stock Market Result Update on TVS Motor for 2QFY2012

Stock Market Result Update on TVS Motor for 2QFY2012 with an Accumulate recommendation and a Target Price of `74 (12 months).

TVS Motor’s (TVSL) 2QFY2012 operating results were ahead of our estimates, driven largely by better-than-expected margin performance. Bottom line came in 13.8% ahead of our estimates, led by operating margin expansion and a decline in interest cost. We continue to maintain our volume estimates at 2.3m/2.6mn for FY2012E/13E. However, we revise upwards our margin estimates to factor in the recent price increases (~1% and ~3.5% in domestic and exports markets) and softening commodity prices. We maintain our Accumulate rating on the stock.

Net profit ahead of estimates on better-than-expected operating performance: TVSL registered strong 23.2% yoy (14.1% qoq) top-line growth to `1,992cr, in-line with our estimates, led by healthy 15.1% yoy (12.7% qoq) growth in total volumes and strong 6.7% yoy (1.5% qoq) growth in net average realization. The scooters segment continued to drive total volume growth, posting 26.6% yoy (34% qoq) growth, while the motorcycle segment witnessed a healthy 14.2% yoy (11% qoq) increase in volumes. The company’s EBITDA margin came in 46bp ahead of our estimates at 6.9%, witnessing an expansion of 29bp yoy (24bp qoq). EBITDA margin expansion was aided by improvement in net average realization and a 120bp yoy savings in other expenditure. However, high raw-material cost (raw-material to sales ratio at 75.5% vs. 73.7% in 2QFY2011 and 76.4% in 1QFY2012) restricted further expansion in margins. Led by strong operating performance and lower interest cost, net profit posted better-than-expected growth of 39.7% yoy (30.1% qoq) to `77cr. 

Outlook and valuation: At `66, TVSL is trading at 10.8x FY2013E earnings. We maintain our Accumulate view on the stock and value it at 12x (20% discount to the multiple of the top two industry players at 15x) FY2013E earnings to arrive at a target price of `74. However, continued investments in subsidiaries are a concern going ahead.