TVS Motor Company
Estimate change
TP change
Rating change
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30 July 2020
1QFY21 Results Update | Sector: Automobile
CMP: INR402
TP: INR392 (-3%)
Neutral
Above est.; Lower other expenses drive beat
2H recovery, price hike of 1.1% with cost cutting to drive margins
TVS Motor Company (TVSL)’s operating performance was supported by
lower other expenses. It expects cost-cutting efforts to boost margins, with
volume recovery and the Premium portfolio outperforming.
We upgrade our FY21/FY22E EPS by 2%/5% to factor volume recovery.
Maintain
Neutral,
with TP of INR392 (~18x Sep’22 EPS + INR40 for NBFC).
1QFY21 revenue declined 68% to ~INR14.3b, and reported EBITDA / adj. loss
of ~INR0.5b/INR1.4b.
Volumes fell by ~71% YoY (-58% QoQ). Realizations grew ~10.8% YoY (-2.5%
QoQ) to INR53.6k (v/s est. INR56.2k), driven by the BS6 cost pass-through.
Gross margins contracted 90bp QoQ (70bp YoY) to 24.1% (est. 25.6%),
weighed by a weaker product mix (lower export mix and Apache) and the
impact of the BS6 cost inflation (as contribution margins are yet to be
passed through).
Furthermore, op. deleverage resulted in EBITDA loss of INR488m (v/s est.
loss of INR663m), although the impact was diluted by cost-cutting initiatives
and cost deferment, as reflected in lower-than-expected other expenses. It
reported loss of ~INR1.4b (v/s est. loss of ~INR1.64b).
Interest cost increased due to additional borrowings in 1QFY21 to ensure
timely payment to suppliers.
Demand outlook:
The company expects demand recovery in 2HFY21, with
TVSL performing better than the industry on account of its portfolio.
The company expects premiumization to continue, albeit delayed by one or
two quarters due to the COVID-19 impact. This should benefit Apache and
Ntorq.
For operational dealerships, demand is back at pre-COVID-19 levels. At the
start of Jul’20, 85% of dealerships were operational. However, this has
dropped to 75% due to fresh lockdowns in select markets.
Production bottlenecks prevailed in Jun’20, but are easing in Jul’20. Apache
faced severe production-related challenges, which impacted the mix in
1QFY21.
Expect margins to improve in 2H, driven by cost cutting and focused market
strategy. Jun’20 EBITDA and PBT were positive, with July thus far faring even
better.
It took a 0.7% price hike in 1QFY21 and has taken a 0.4% price hike in July.
Finance:
Finance penetration increased to 52% v/s 46% YoY. TVS Credit
holds 54% share of TVSL Financing. TVS Credit’s moratorium is currently at
14% (incl. Morat 2.0) v/s 37% earlier, backed by strong collection efforts.
Collections are now at pre-COVID-19 levels.
Capex
would be INR3b for FY21 and investment in TVS Credit would be
~INR750m.
Op. performance driven by substantially lower other expenses
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
Financials & Valuations (INR b)
FY20 FY21E
Y/E March
Sales
164.2 159.5
EBITDA
13.5
12.5
Adj. PAT
6.2
4.9
EPS (INR)
11.9
10.3
EPS Gr. (%)
-15.4
-13.8
BV/Sh (INR)
76.2
82.2
Ratios
RoE (%)
16.3
13.0
RoCE (%)
17.1
13.7
Payout (%)
33.8
40.9
Valuations
P/E (x)
33.7
39.1
P/BV (x)
5.3
4.9
Div. Yield (%)
0.9
0.9
FCF Yield (%)
3.5
3.2
TVSL IN
475
191.1 / 2.6
503 / 240
-3/-7/11
988
42.6
FY22E
188.8
17.6
8.3
17.5
70.4
94.9
19.8
20.1
27.4
22.9
4.2
1.0
4.5
Highlights from management commentary
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-20 Mar-20 Jun-19
57.4
57.4
57.4
22.0
21.2
16.4
10.5
11.4
15.7
10.1
10.0
10.5
FII Includes depository receipts
Jinesh Gandhi – Research Analyst
(Jinesh@MotilalOswal.com)
Vipul Agrawal – Research Analyst
(Vipul.Agrawal@MotilalOswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
3 September 2019
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