TVS Srichakra - 4QFY2015 Result Update - Angel Broking

For 4QFY2015, TVS Srichakra (TVSSL) reported a good set of numbers. Its top-line for the quarter improved marginally by 1.8% yoy to Rs. 465cr. The benefit from the low raw material prices has resulted in net raw material cost coming down by 863bp yoy to 56.1% of sales. Employee and other expenses rose by 233bp yoy and 112bp yoy to 9.2% and 20.9% of sales respectively. The EBITDA margin expanded by 518bp yoy to 13.8%, beating our estimate of 12.4%. The depreciation expense increased drastically by 222.3% yoy during the quarter to Rs. 19cr; but at the same time, interest expense came down by 53.1% yoy to Rs. 4cr owing to reduction in debt. Consequently, the net profit grew by 56.9% yoy to Rs. 34cr vis-à-vis our expectation of Rs. 31cr.

Steady two-wheeler (2W) sales and capacity expansion by top clients to aid top-line growth: TVSSL's key client Honda Motorcycle & Scooter India (HMSI) has posted robust numbers for 4QFY2015, which is impressive compared to negative or almost no growth posted by other major clients. HMSI has set out aggressive plans to scale up its business in India with a view to become the largest subsidiary of its parent. HMSI has mentioned that capacity constraints had resulted in the company not being able to grow at a faster pace and has lined up aggressive capex plans for the future. We expect capacity addition by major clients to result in good revenue visibility for TVSSL as it is a market leader in the 2W OEM segment. Additionally, the company (TVSSL) wants to garner a larger share in the high margin replacement market segment where it holds the number three position.

Outlook and valuation: We expect TVSSL's top-line to grow at a CAGR of 12.3% over FY2015-17E to Rs. 2,389cr. We expect the operating margin to improve to 12.1% in FY2017E on the back of lower rubber prices and improvement in market share in the aftermarket segment. Consequently, the net profit is expected to be at Rs. 155cr in FY2017E. At the current market price, the stock is trading at a PE of 9.3x its FY2017E earnings. We have a Buy rating on the stock with a revised target price of Rs. 2,228 based on a target PE of 11.0x for FY2017E earnings.

Shares of TVS SRICHAKRA LTD. was last trading in BSE at Rs.1689.25 as compared to the previous close of Rs. 1711.5. The total number of shares traded during the day was 894 in over 76 trades.

The stock hit an intraday high of Rs. 1710 and intraday low of 1684. The net turnover during the day was Rs. 1515046.

Source : Equity Bulls

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