TVS Motor Company - PINC Result Review

Raw Material Plays Spoilsport

A disappointment on the margin front led TVS Motor (TVSL) to post a lower than estimated net profit in Q1FY11. A spike in raw material costs led to a 30bps decline in margins sequentially. Net profit for the quarter more than doubled YoY to Rs404mn as against Rs181mn. In the consolidated result for FY10, the company declared a reduction in loss for subsidiaries from Rs943mn to Rs545mn.

Outlook: On the back of a strong response to the Wego and ramp up in 3-wheelers we raise our volume estimates for FY11 by 9.5% to 1.98mn units. With increased contribution from higher end models ahead, we have maintained our margin estimates. The volume upgrade has resulted in a 18% and 15% increase in our earnings estimate for FY11 and FY12 to Rs7.6 and Rs8.7 respectively.

VALUATIONS AND RECOMMENDATION

The stock is currently trading at 16.5x FY11E and 14.8x FY12E standalone earnings. We maintain a 'HOLD' rating on the stock with a price target of Rs121 discounting FY12E earnings 14x.

Source : Equity Bulls

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