TVS Motor Company - 1QFY2013 Result Update - Angel Broking

TVS Motor Company (TVSL) reported better-than-expected results for 1QFY2013 led by higher-than-expected volumes and stronger-than-expected net average realization. Going ahead, we expect a challenging environment for the company due to rising competition in the two-wheeler sector amidst moderation in demand. However, we believe that the upcoming launches, new motorcycle in the executive segment in 2QFY2013 and new scooter in 4QFY2013 will be the key for the company to regain volume momentum going ahead. Due to attractive valuations, we recommend Accumulate on the stock.

Better-than-expected performance for 1QFY2013: TVSL reported net sales growth of 4.2% yoy (11.8% qoq) to Rs.1,820cr (better than our estimates) aided by upward revision in volumes by 5.4% and also due to strong growth in net average realization (up 8% yoy). Total volumes reported a decline of 3.0% yoy (1.7% qoq) led by 10.1% and 4.0% yoy decline in motorcycle and scooter volumes, respectively. EBITDA margin came in-line with our estimates at 5.9%, showing a decline of 80bp yoy (flat qoq) due to increase in other expenditure. Other expenditure jumped 210bp yoy primarily due to increase in advertising spends on key brands like Wego, Star City, Sport and recently introduced Apache and Scooty Pep. Net profit registered a decline of 13.1% yoy (down 10.7% qoq) to Rs.51cr. Net profit was 14.2% above our estimates due to higher-than-expected top-line.

Outlook and valuation: We have tweaked our volume estimates slightly and model volume growth of 3.2%/6.9% for FY2013E/14E, respectively. Going forward, we expect operating margins to remain under pressure due to rising competition in the two-wheeler sector leading to increase in advertising spends. Nonetheless, at Rs.38, TVSL is trading at attractive valuations of 7.1x FY2014E EPS. We recommend Accumulate rating on the stock with a target price of Rs.43.

Source : Equity Bulls

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