ChangeinEstimatesRatingTarget

Q2 FY16

TVS
Motors
Netsalesrise8%yoyowingto7.6%jumpinrealizationsasvolumessawa

muted0.4%yoygrowth,Saleswereaboveourexpectations
OPMat7.4%wassubstantiallyaboveourestimatesof6.7%,whilegross

margins were higher by 221bps, 109bps yoy increase in overheads was

disappointing
APATwasatRs.116crwashigherthanestimatesonbetterthanexpected

Rating:
Target:
CMP:
Downside:

Reduce
Rs255
Rs276
8.2%

Sector:

Automobiles

Sector view:

Positive

operatingperformance

Sensex:

Growth in volumes was on account of 12% yoy increase in scooters and

18%yoygrowthinthreewheelervolumeswhichwasoffsetbydeclinein
mopedvolumesby15.2%
Wecutourestimatestofactorinweakerthanexpectedvolumetrendsin

thefirsthalfandretainReduceratingwitharevisedpricetargetofRs255

Resulttable
(Rscr)
Volumes
Realisation(Rs/unit)
Netsales
Materialcosts
Purchases
Personnelcosts
Otheroverheads
Operatingprofit
OPM(%)
Depreciation
Interest
Otherincome
PBT
Tax
Effectivetaxrate(%)
AdjustedPAT
Adj.PATmargin(%)

Q2FY16
678,718
42,444
2,881
(1,988)
(67)
(166)
(449)
212
7.4
(47)
(10)
6
161
(45)
27.7
116
4.0

Q2FY15
676,139
39,451
2,667
(1,903)
(59)
(154)
(386)
165
6.2
(37)
(3)
6
131
(37)
27.8
95
3.6

%yoy
0.4
7.6
8.0
4.5
13.5
7.3
16.1
28.3
116bps
27.3
194.5
(6.7)
22.5
21.9

22.8
49bps

Q1FY16
638,033
41,083
2,621
(1,834)
(54)
(156)
(414)
164
6.2
(42)
(13)
10
118
(28)
23.5
90
3.4

%qoq
6.4
3.3
9.9
8.4
24.1
6.4
8.4
29.5
111bps
10.4
(22.0)
(40.3)
36.3
60.2

29.0
60bps

Source:Company,IndiaInfolineResearch

27,253

52Weekh/l(Rs):

322/201

Marketcap(Rscr):

12,910

6mAvgvol(000Nos):

1,649

Bloombergcode:

TVSLIS

BSEcode:

532343

NSEcode:

TVSMOTOR

FV(Re):

Prices as on October 27, 2015

Sharepricetrend
TVSMOTOR

140
120
100
80
60
40

Oct14

Sensex

Feb15 Jun15

Oct15

Shareholdingpattern

Mar15

Jun15

Sep15

Promoters

57.4

57.4

57.4

Institutions

26.3

27.1

29.1

Others

16.3

15.5

13.5

Net sales growth of 8% yoy, above expectations

TVS Motors reported revenues of Rs. 2,881crs for Q2 FY16 above our
expectations. It represented a growth of 8% yoy led by 7.6% yoy rise in
realizationsand0.4%increaseinvolumes.Growthinvolumeswasledby12%
yoyincreaseinscootervolumesand18%yoyjumpinthreewheelerswhich
was offset by flat motorcycles segment and decline in Mopeds segment by
15.2% yoy. In terms of geographic breakup while domestic volumes were
lowerby4.5%yoy,exportvolumesjumpedby22.6%yoydrivenby25.9%yoy
jump in three wheeler exports and 21.7% higher two wheeler exports.
Realizationswerehigheronthebackof1)increaseinthreewheelersharein
total volumes from 4.1% in Q2 FY15 to 4.9% in Q FY16 and 2) increase in
exportsshareintotalvolumesfrom15.2%inQ2FY15to18.7%inQ2FY16.

Research Analyst:
PrayeshJain
AshiniShah
research@indiainfoline.com

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October28,2015

ResultUpdate

TVS Motors (Q2 FY16)

OPM much higher than our and street estimates

ReportedOPMwasat7.4%ascomparedtoourestimateof6.7%.OPMwashigherby116bpsyoyand111bps
qoq while operating profit per vehicle was higher by 27.8% yoy and 21.7% qoq. Gross margins expanded by
221bpsyoyonthebackofsoftnessseeninrawmaterialpricesinrecenttimes.Whilestaffcostswerelowerby
4bps yoy as a percentage of sales overheads continued to remain high with an increase of 109bps yoy as a
percentageofsales.

PAT at Rs116crs was higher than expectations

ThecompanyreportedaPATofRs.116crv/sourestimateofRs.106cr.Thegoodperformancewasontheback
ofsharplyhigherthanexpectedoperatingperformance.Operatingprofitgrewby28.3%yoyandPBTgrewby
22.5%owingtomorethandoubleinterestcostsand27.3%yoyhigherdepreciation.

Costanalysis
Asa%ofnetsales
Materialcosts
Purchases
PersonnelCosts
Otheroverheads
Totalcosts

Q2FY16
69.0
2.3
5.8
15.6
92.6

Q2FY15
71.3
2.2
5.8
14.5
93.8

bpsyoy
(232)
11
(4)
109
(116)

Q1FY16
70.0
2.0
5.9
15.8
93.8

bpsqoq
(98)
26
(19)
(21)
(111)

Source:Company,IndiaInfolineResearch

Trendinvolumesandrealizations

OPM(%)

Realizations
45,000

8.0

700,000

40,000

7.0

600,000

35,000

6.0

800,000

Rs/vehicle

Nos

30,000

500,000

200,000

10,000

2.0

100,000

5,000

1.0

2,500
2,000
1,500
1,000
500

Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16

3,500
3,000

3.0

15,000

Rs/vehicle

4.0

20,000

300,000

5.0

25,000

400,000

OperatingProfit/Vehicle

Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16

Volumes

TrendinOPM

Source:Company,IndiaInfolineResearch

Key takeaways from the conference call

Thecompanyishopefulofachievinganexitmarketshareof15%inthedomestictwowheelerindustry.For

threewheelersexportmarketthecompanyexpectstohaveamarketshareof27%overthenextcoupleof
years.
Accordingtothemanagement,favorableproductmix,softcommodityprices,strongtoplineperformance

andmarketshareincreasewillleadtogrowthofEBITDAmarginsgoingforward.
Thefestiveseasonsofarhasseendoubledigitgrowthforthecompany.
Thecompanyhaslineduptwonewmotorcyclelaunches:VictorandapremiummotorcycleinH2FY16.
CapexfortheyearisRs350croreandcurrentcapacityutilizationis90%.
Thecompanymaintaineditstargetofdoubledigitoperatingmarginsoverthenexttwotothreeyears.

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TVS Motors (Q2 FY16)

Cut estimates to factor in lower than estimated volume performance in H1 FY16

InspiteofabeatatOPMlevelwearecuttingourearningsestimatestofactorinalowerthanestimatedvolume
performance during H1 FY16. We expect TVS Motors to outperform the industry in terms of volume growth
consideringitslineupofnewlaunchesandscopeofincrementalpenetrationinexportmarkets.Alsoitsstrong
presenceinthescooterssegmentbodeswellforthecompany.Marginshaveupsidesfromthecurrentlevels
due to 1) lower commodity prices, 2) benefits of operating leverage, 3) incremental volumes coming from
premiumproductsandthreewheelersand4)increasingcontributionofthreewheelers.However,webelieve
thattheseupsidesaremorethanadequatelyfactoredinFY17EP/Eof21.2x.WemaintainourReduceratingon
thestockwitharevisedtargetpriceofRs255.

Financialsummary
Y/e31Mar(Rscr)
FY15
Revenues
10,098
yoygrowth(%)
26.8
Operatingprofit
604
OPM(%)
6.0
PreexceptionalPAT
348
ReportedPAT
348
yoygrowth(%)
32.9

EPS(Rs)
7.3
P/E(x)
37.6
Price/Book(x)
7.9
EV/EBITDA(x)
23.1
Debt/Equity(x)
0.6
RoE(%)
22.7
RoCE(%)
20.4
Source:Company,IndiaInfolineResearch

FY16E
11,115
10.1
801
7.2
454
454
30.7

9.6
28.7
6.6
17.3
0.5
25.0
22.8

FY17E
12,948
16.5
1,040
8.0
615
615
35.4

12.9
21.2
5.2
13.0
0.4
27.4
26.5

FY18E
15,365
18.7
1,341
8.7
822
822
33.6

17.3
15.9
4.1
9.6
0.3
28.8
29.6

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