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Sunday, December 13, 2015

TVS MOTORS LTD: RACING AHEAD !!!

Scrip Code: 532343 TVSMOTOR
CMP:  Rs. 274.00; Market Cap: Rs. 13,017.38 Cr; 52 Week High/Low: Rs. 322.25 / Rs. 201.00
Total Shares: 47,50,87,114 shares; Promoters : 27,26,82,786 shares – 57.40 %; Total Public holding : 20,24,04,328 shares – 42.60 %; Book Value: Rs. 34.63; Face Value: Rs. 1.00; EPS: Rs. 8.15; Dividend: 190.00 %; P/E: 33.61 times; Ind P/E: 25.01; EV/EBITDA: 19.51.
Total Debt: Rs. 970.47; Enterprise Value: Rs. 13,985.00 Cr.
                                                                                                                       
TVS MOTORS COMPANY LTD: The Company was founded on 15th July, 1982 and is based in Tamil Nadu, India. The company was formerly known as Indian Motorcycle Pvt Ltd and changed its name to Indo Suzuki Motorcycles Pvt ltd on 12 January 1984 and again changed its name to TVS Suzuki on 18 August 1986. On 27 September 2000, TVS group bought out the 25.97 % stake from its Japanese partner Suzuki Motor Corporation for Rs. 9 Cr and dropped the word Suzuki from its name. The company came with the public offer in 1984 with 59,40,000 equity shares issued at par and from that 29,70,000 shares were offered to the public. TVS Motor Company has last declared split in its face value of its shares from Rs. 10 to Rs. 1 on 17 October 2003 and later company declared bonus in the ratio of 1:1 on 21 July 2010. TVS Motor Company Limited manufactures motorcycles, scooters, mopeds, three wheelers and its parts and accessories. TVS Motor Company Ltd (TVS Motor) is a member of the TVS group, and TVS Motors is also the largest company of the group in terms of size and turnover. The Company's products are distributed by network of authorized dealers across India. The Company has strong distribution network in the two wheeler industry and it continuously seeks to increase its distribution reach. TVS is the first company in India to introduce 4 stroke scooter and the pioneers of Indo-Japanese motorcycles in India. It is also the first company to launch India’s first auto clutch motorcycle viz. TVS JIVE. The Company's motorcycles products include Apache Series RTR, Phoenix 125, StaR City+, TVS JIVE, Sport and Max4R. Its scooters include Jupiter, Wego, Scooty Zest 110, Scooty Streak and Scooty Pep+. Its Mopeds products are TVS XL Super, TVS XL Heavy duty. The Company's three wheelers include TVS King, which is a diesel version. The company has four manufacturing plants, three located in India at Hosur, Tamil Nadu; Mysore, Karnataka, and Nalagarh, Himachal Pradesh and one in Karawang, Indonesia. The Company's subsidiaries include Sundaram Auto Components Limited, TVS Housing Limited, PT. TVS Motor Company Indonesia, TVS Motor Company, TVS Motor (Singapore) Pte Limited and Sundaram Business Development Consulting (Shanghai) Company Limited. TVS Motors Company Ltd is locally compared with Scooters India Ltd, Force Motors Ltd, Atul Auto Ltd, Maruti Suzuki India Ltd, Mahindra & Mahindra Ltd, Tata Motors Ltd, Ashok Leyland Ltd, Daewoo Motors India Ltd, Eicher Motors Ltd and Globally with Honda Motor Co. Ltd of Japan, Nissan Motor CO. Ltd of Japan, Toyota Motor Corp of Japan, Mitsubishi Motors of Japan, Bayerische Motoren Werke AG of Germany, Harley-Davidson Inc of USA, Yamaha Motor Co of Japan, KTM AG of Germany, Chongping Kington-Liyang Motorcycle Manufacturing co. Ltd of China, Ducati of Italy, Kawasaki Motors of Japan, Suzuki Motors of Japan, Nitro Motor Cycle of Malaysia.

Investment Rationale:
TVS Group is US$ 7.29 billion group spanned across industries like Automobile, Aviation, Education, Electronics, Energy, Finance, Housing, Insurance, Investment, Logistics, Services and textiles. TVS Group has over 90 Companies under its umbrella. TVS Motor Company Ltd is a member of the TVS group, is the largest company of the group in terms of size and turnover. The company has four manufacturing facilities located at Hosur, Mysore, Himachal Pradesh and Indonesia. The Company's products are distributed by network of authorized dealers across India. The Company has strong distribution network in the 2W industry and is continuously making efforts to increase its distribution reach. The two wheeler industry's growth in India appears to have converged to the long term trend after three years, growing 9 % in 2014-15. While the first half of 2014-15 witnessed a growth of 18 %, the second half grew by only 2 %. Hence, the annual growth rate of 9 % is not a fair reflection. Decline in growth in second half was more pronounced in rural markets. This is mainly due to a lag effect of lower agricultural output and impact of unseasonal rains. Scooter as a category continued to gain share in total two wheeler industry. The category share of scooters increased from 23 % to 27 % due to changing consumer preferences and strong urban demand. Scooters segment increased from 36.97 lakh numbers to 47.00 lakh numbers. The motorcycle segment remained flat at 4 % of around 129.97 lakh in numbers in 2014-15. The continued traction in urban demand however enabled the premium segment to increase by 19 % of around 24.23 lakh in numbers in 2014-15. This is in contrast to the lower growth witnessed in the commuting segment of 1 % growth of 105.35 lakh in numbers in 2014-15. Mopeds grew marginally by 5 % in 2014-15 compared to a decline of 8 % in 2013-14. The petrol passenger three wheeler industry 3 plus 1 segment increased by 23 % during 2014-15 to 5.61 lakh units. Domestic sales increased by 51 % due to new permits released by Maharashtra from 1.04 lakh units in 2013-14 to 1.57 lakh units in 2014-15. Exports increased by 15 % from 3.51 lakh units in 2013-14 to 4.04 lakh units in 2014-15. Revival in economic activity appears to be marginal and slow paced. With a nominal growth in crop prices, unseasonal rains, stagnating rural wages and declined rabi output, weakness in rural economy appears to persist. Increasing probability of El-nino effect can result in poor spatial and seasonal distribution of rainfall affecting kharif production. Consequently the growth in two wheeler industry in 2015-16 is expected to be flat at 9 % as in 2014-15. TVS Motor Company is the third largest two-wheeler manufacturer in India and one among the top ten in the world, with annual revenue of more than Rs. 10,131 Cr in 2014-15. The company has a production capacity of 3o lakhs 2 wheelers & 1.2 lakh 3 wheelers a year. TVS plans for new product launches like Victor and new Apache which are on track for 4QFY16. TVS motors have tied up with BMW which would give TVS an additional revenue stream in the form of contract manufacturing for BMW Motorrad. Moreover, it would give an aspirational value to TVS products, particularly in premium ones. The first product is expected to be launched by FY17 and which would have investment of 2 Cr Euros over CY13-15 by TVS. BMW has showcased its concept from TVS alliance in Brazil and have received very good response. BMW enjoys 14 % market share in >650 cc segments and assuming even 10 % market share for BMW in global market in 250-650cc segment which are of 10lakh units market size could contribute around Rs. 142.52 Cr in net profit of the company. TVS Motor Ltd with its efforts intends to target 15 % market share in domestic 2W business by FY16 end and 27 % market share in 3W Exports. TVS Jupiter has shown a strong growth and this led to postponement of new launches. But plans to launch new Moped in UP and if successful then it would be launched PAN India in 3 months. Company plans its capex of Rs. 350 Cr in FY16. TVS has current utilization at 90 % in India and might have to add capacity for Scooters and Victor/Apache depending on demand going ahead. TVS has made investment of Rs. 26.7 Cr in Indonesian subsidiary and Rs. 25 Cr in TVS motor services and has volume of 6800 units for 2QFY16. Company exports Bebex/Scubex from Indonesia to Africa, Latin America, and Middle East etc. This investment in Indonesia will increase its capacity to 20000 month from 2500 to 3,000 per month production now. Management targets 10 % EBITDA margin in 3 years, and most of the margin expansion is expected to come from increased market share and consequent operating leverage benefits. New launches and BMW tie up with efforts to increase market share and increasing capacity would drive the topline and TVS looks best option for two wheelers sector.

Outlook and Valuation:
BMW-TVS-Concept-G-310.
TVS Motor Company is the third largest two-wheeler manufacturer in India and one among the top ten in the world, with annual revenue of more than Rs. 10,131 Cr in 2014-15. The company has a production capacity of 3o lakhs 2 wheelers & 1.2 lakh 3 wheelers a year. TVS Motor's strength lies in design and development of new products. TVS delivers total customer satisfaction by anticipating customer need and presenting quality vehicles at the right time and at the right price. The company has many firsts to its credit including the fact that it launched seven vehicles on the same day - a rare feat in automotive history. TVS has always stood for innovative, easy-to-handle, and environment-friendly products, backed by reliable customer service. More than 2.8 Cr customers have bought a TVS product to date. Today, the TVS group is one of India's leading suppliers of automotive components, with a work force of 40,000 people across 30 companies with an annual turnover of USD 7.29 billion. The first four companies in India to have won the coveted Deming Prize are from the TVS group. TVS Motors have successful launch of Jupiter and Star City Plus and which are driving customers back to TVS brand, after long time. Market share in both the scooters and motorcycles are on rising trend, with TVS now the 2nd largest in scooters and 3rd largest in domestic 2W. And so it is expected that the market share to gain as recent launches of Star City+ and Scooty Zest will be too in Southern market which are known as key market for TVS gains traction. Successful launch of new launches could give disproportionate benefit led by improving brand acceptance and wide distribution network which will be 2nd best to HMCL. Recovery in industry growth, ramp-up in production of recent launches and upcoming re-launch of Victor motorcycle in Executive segment which is 40 % of total 2W industry will drive 14 % volume CAGR over FY15-17E. India has 17 vehicles per 1,000 in population, which is the lowest vehicle density of all the BRIC emerging markets. In contrast, the U.S. and Europe vehicle densities are more than 600 and more than 400, respectively. However, there has been the popularity of motorcycles in India. Rising income levels and an expanding middle class population to more than 350 million will also boost the 2wheeler growth. On Financial side for TVS Motor’s there was QoQ improvement in EBITDA margin largely because of the function of gross margin improvement led by a richer product mix and favourable raw material price. Company’s Export revenues for the quarter stood at Rs. 695 Cr as against Rs. 650 Cr in Q1FY16. Management states that most of the benefits of decline in input costs have been realized in Q2 and during the ongoing festive season, TVSL has seen 2w market share at 15 %. Scooters have grown faster than motorcycles and mopeds. Market demand has been sluggish due to rural segment being impacted by bad monsoons. The management has also stated that huge demand for Jupiter and capacity constraints prompted them to delay the launch of its executive segment offering Victor. Jupiter scooter is currently seeing waiting period of close to a week. Both, the Victor and the new Apache will be launched in Q4FY16. As per the management, scooter segment is currently operating at 90 % utilization. TVS Motors’ Q2 EBITDA margins were at 7.3 % and its OPM was led by gross margin expansion of 0.70 % QoQ as the company saw benefits of soft input costs and a better mix. The management maintained its target of 10 % EBITDA margin over the next 3 years. The margin target is based upon improvement in product mix; operating leverage benefits and success of recent launches sustaining, thereby requiring lesser marketing support to help achieve this target. Nov-15 sales were at 2,25,401 units , a growth of 2 % YoY  but a degrowth of -18 % MoM. It is expected that the company can show overall volume growth of 8 % in FY16, implying residual growth of 14 % or run-rate of 2,26,000 units. TVS’s Scooters volumes grew 22 % YoY to 76,043 units and it is expected to have 10 % growth in scooters volumes in FY16, implying residual growth of 1 % or 57,523 units. Company’s Motorcycle volumes de-grew by 5 % YoY to 82,163 units and is expected to grow 11 % in FY16 implying residual growth rate of 22 % or 91,000 units. Company’s Mopeds decline 5 % YoY to 59,500 units and is expected to decline further 3 % in FY16, implying residual no growth or run-rate of 64,000 units. TVS Motors 3Wheelers de-grew by 15 % YoY to 7,695 units and is expected to have 22.5 % growth in 3Ws in FY16 implying residual growth rate of 38 % or 12,853 units. Its Exports de-grew by 19 % YoY to 33,621 units. TVS Motor Company Ltd and BMW tie-up would give TVS an additional revenue stream in the form of contract manufacturing for BMW Motorrad. Moreover, it would give an aspiration value to TVSL products, particularly premium ones. TVSL would invest EUR20m over CY13-15, with the first product expected to be launched by FY17. This alliance would contribute around Rs. 142.52 Cr in net profit, impling EPS contribution of Rs. 3 per share. At the CMP of Rs. 274.00, the stock is trading at its all-time high P/E of 28.24 x FY16E, 17.12 x for FY17E. The Company can post EPS of Rs. 9.70 for FY16E & Rs. 16.00 for FY17E. Looking forward the medium-term earnings growth and improvement of return ratios gives immense opportunity to this company. Also its Earnings growth potential with new product line and tie up will help to keep its growth story intact for the coming quarters also.

KEY FINANCIALSFY14FY15FY16EFY17E
SALES ( Crs)7,961.8510,098.2011,530.0014,520.00
NET PROFIT (₹ Cr)261.63347.83460.00760.00
EPS ()5.517.329.7016.00
PE (x)43.8632.9931.2019.00
P/BV (x)8.116.977.305.60
EV/EBITDA (x)23.3519.4518.7012.10
ROE (%)18.2721.1425.5033.30
ROCE (%)33.8430.8224.3032.70

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*As the author of this blog I disclose that I do not hold TVS MOTORS COMPANY Ltd in my any of the portfolios.

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5 comments :

  1. Sounds interesting..8% SL is quite risk aversive... Thanks for the tip, Bhavikk

    ReplyDelete
  2. can we say the scooters are back. thanks for the detailed analysis

    ReplyDelete
  3. A very good insight into TVS, a company that has stood for trust and honesty over so many years.

    ReplyDelete
  4. at Frost and Sullivan, have analysed the two wheeler market and TVS a prominent player then has just seen growth. It did face competition when Honda entered the scooter market but strengthen its share. a strong reason being high localization and backing from a umbrella group of TVS. super analysis as always :)

    ReplyDelete
  5. Epic Research suggests essential share trading tips and current market trends for all the traders, they can know investment ideas and make a big profit.

    ReplyDelete

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