TVS Motor Company - Weak performance - ElaraCapital

Operationally weak quarter on sticky other opex; results ahead

TVS reported weak operational performance for Q4FY13, with EBITDA performance below par on high opex burden, but adjusted PAT higher than estimates on lower effective tax and interest costs. While net sales came in-line on improving realizations (led by Phoenix 125) and gross margin beat estimates, EBITDA fell below estimates as other opex continued to remain sticky (up 26% v/s volume decline of 4% YoY). Though operating profits were below par, lower interest costs and sharp fall in effective tax rate to just 8% caused adjusted profits to arrive 18% ahead of estimates, posting a 2% YoY growth. On a reported basis, TVS posted loss of INR327mn, as it took a write-down in one of its international subsidiaries

Performance improvement on the cards; expect better FY14E

TVS has seen the worst among 2W players in the current demand slow down, with volumes (down ~7% YoY) and earnings (down 17% YoY) coming under severe pressure in FY13. However, stable QoQ volumes and earnings performance indicates volume growth recovery from low base and led by launches in both bike and scooter segments scale up in Phoenix 125 volumes and stability in exports business. We believe that TVS's volumes are likely to rebound to single digit growth in FY14E, starting from Q2FY14E onwards. Low base and tight cost controls should provide the much needed stability in margin structure, which along with falling interest costs on paring down debt, should result in strong double digit earnings growth in FY15E.

Valuations - adequate discount at inexpensive valuations

TVS stock came under heavy pressure recently, as volumes suffered the most among 2-wheeler majors. Even on modest volume growth assumptions of ~7% for next two years and factoring in margin crunch, the stock trades at an inexpensive ~7x FY15E earnings, adequately pricing in impact of slowdown and market share loss over the next two years. Maintain positive stance.

Source : Equity Bulls

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