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.
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