TVS Motor Company - 4QFY2013 Result Update - Angel Broking

For 4QFY2013, TVS Motor Company (TVSL) reported a weak operating performance, leading to a 68bp yoy (57bp qoq) decline in EBITDA margins. The adjusted bottom-line at Rs. 58cr (adjusted for exceptional charge) however, was ahead of our estimates led by 58.2% yoy (52.9% qoq) decline in interest cost and lower tax rate (8% as against 21.7% in 3QFY2013). TVSL recorded an exceptional charge of Rs. 92cr in 4QFY2013 towards provisioning for diminution in the value of its European subsidiary as a result of which, the company posted a bottom-line loss of Rs. 33cr. TVSL has been impacted the most by the ongoing slowdown in the two-wheeler industry and has witnessed a significant erosion in its market share in the domestic scooter (down ~500bp to 14.5%) and motorcycle (down ~70bp to 5.5%) segments in FY2013. We expect the operating environment to remain challenging for TVSL in FY2014 given that the competition in the sector is increasing and also that the demand environment remains sluggish. We recommend a Neutral rating on the stock.

Poor 4QFY2013 performance: TVSL's top-line declined by 2.8% qoq in 4QFY2013 to Rs. 1,748cr, which was due to a 1.8% qoq decline in volumes on account of the slowdown in the two-wheeler industry and increasing competition. The net average realization too registered a decline of 1.3% qoq on account of an adverse product-mix. On a yoy basis though, the top-line grew by 6.8% yoy, driven by a strong 10.9% yoy growth in net average realization on back of a superior product-mix, comprising a greater proportion of three-wheelers (2.8% vs 1.5% in 4QFY2012). The EBITDA margin posted a decline of 68bp yoy (57bp qoq) to 5.4%, against our expectation of 6%, led by a sharp increase in other expenditure on account of higher marketing spends and increase in power and distribution expenses. Hence the operating profit declined by 5.2% yoy (12.1% qoq) to Rs. 94cr.

Outlook and valuation: At Rs. 40, TVSL is trading at 6.9x FY2015E earnings. We recommend a Neutral rating on the stock.

Source : Equity Bulls

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