TVS Motors - No festive cheer; Hold - Anand Rathi

TVS Motors' Nov'12 sales came in at 171,837 units, nearly 10% lower than our expectation. October growth was driven by inventory filling for festive demand, which translated into limited retail sales growth in November. Three wheelers and motorcycles, both on a lower base, were the only positive movers. We retain Hold on the stock.

- Weak trend in two wheelers. For Nov'12, the company's two-wheeler volumes were 166,783 units, down 3.5% yoy and 10.5% mom. In 2QFY13, the two-wheeler industry resorted to inventory correction, causing a sharp slide in dispatches. In the same time, demand weakness was accentuated by the inauspicious Hindu calendar month "adhik mass" (mid-Aug to mid-Sep) when capital/white goods purchases are avoided by most consumers. However, after a decent October, TVS was unable to witness a material recovery even during the festival season.

- Peers to perform much better. Among industry peers, Bajaj Auto's sales were just marginally lower yoy. Honda Motorcyle and Scooters witnessed a good 12.2% growth in its sales to 223,116 units, while smaller players like India Yamaha and Suzuki Motorcycles reported growth of 32% and 25%, respectively. Hero MotoCorp displayed the most disappointing performance with a 6.4% dip in sales.

- Three wheelers robust; exports down. Three-wheeler sales nearly doubled yoy (up 24.4% mom) to 5,054 units, surpassing the previous peak. Exports were subdued, lower 10.4% yoy.

- Valuation. We have a Hold on the stock, with a target of Rs.44, based on 8x FY14 earnings. At the ruling price, it trades at 7.2x FY14e. Risks. Upside. Better-than-expected demand and operating performance. Downside. Keen competition, leading to destructive price wars, and a steep rise in commodity prices.

Source : Equity Bulls

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