TVS Motor Company
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
TVSL IN
475
200.6 / 2.7
503 / 240
-15/16/-12
1086
30 October 2020
2QFY21 Results Update | Sector: Automobile
CMP: INR422
TP: INR445 (+5%)
Neutral
Margin beat led by favorable Fx and lower expenses
Cost cuts and volume growth to drive margins
TVS Motor Company (TVSL)’s operating performance was led by favorable
Fx and lower cost. However, commodity cost inflation, INR appreciation,
and the reversal of employee cost to pre-COVID levels from Oct’20 would
dilute margins.
We cut our FY21E EPS by 9% due to an increase in depreciation and
interest, while we maintain FY22E EPS. Maintain
Neutral,
with TP of INR445.
2QFY21 revenue / EBITDA / adj. PAT grew ~5.9%/12.6%/0.5% to
~INR46b/INR4.3b/INR1.97b. 1HFY21 revenue / EBITDA / adj. PAT contracted
~31.5%/48%/83%.
Net sales grew by 6% YoY to INR46b as volumes declined 2% YoY and
realizations grew ~8.1% YoY (-1.1% QoQ) to INR53.1k (v/s est. INR54.7k),
driven by the BS6 cost pass-through.
Gross margins contracted 70bp QoQ (-320bp YoY) to 23.5% (est. 25%) on
the impact of BS6 cost inflation (as contribution margins have not yet been
passed through). Although, the impact was diluted by favorable Fx
(estimated at 120bp).
The EBITDA margin expanded by 55bp YoY to 9.3% (v/s est. 8.6%) on lower
other expenses. EBITDA grew 12.6% YoY to INR4.3b (v/s est. INR4b). Higher
other income boosted adj. profit to ~INR1.96b (in line with estimate).
In 1HFY21, TVSL’s CFO grew 167% YoY to INR14.5b, driven by a sharp
reduction of INR11b in working capital. It invested ~INR2b in capex and
~INR1.5b in subsidiaries and associates.
Retail sales grew marginally during Navratri and Dussehra,
predominantly
in premium products. With urban market retail is reaching pre-COVID levels
and rural is positive, the company expects good sales during Diwali.
TVSL started accounting for a sharp reduction in MEIS incentives from
Sep’20, and it accounted for incentives at earlier rates up to Aug’20. It
would mitigate this loss through some price increases and cost reduction.
Financing
penetration stood at 46% (v/s 56% in 4QFY20 and 46–47% in
2QFY20) – TVS Credit has 50% share. TVS Credit Services is seeing
collections at similar, if not better than, pre-COVID levels.
Employee cost was lower in 1H due to salary cuts; it has been restated to
pre-COVID levels from 1
st
Oct.
Capex:
It has increased its capex target to INR5b for FY21 (v/s INR3b
earlier). Furthermore, it would invest an additional INR0.9–1b in TVS Credit
(~INR0.5b) and Norton. In 1HFY21, it invested INR1.5b in subsidiaries.
TVSL’s volume growth is now falling in line with the market as a large
portion of portfolio gaps has been filled. Valuations at 21.2x/16.8x
FY22E/FY23E EPS already reflect a large portion of earnings recovery.
Maintain
Neutral,
with TP of ~INR445 (~18x Sep’22 EPS + INR40 for NBFC).
Financials & Valuations (INR b)
FY20 FY21E FY22E
Y/E March
Sales
164.2 158.0 194.5
EBITDA
13.5
12.6 18.9
Adj. PAT
6.2
4.7
9.5
EPS (INR)
13.0
9.8 19.9
EPS Gr. (%)
-7.8 -24.4 102.4
BV/Sh (INR)
76.2
81.8 96.9
Ratios
RoE (%)
17.7
12.4 22.3
RoCE (%)
17.1
13.6 22.9
Payout (%)
33.8
42.8 24.2
Valuations
P/E (x)
32.5
43.0 21.2
P/BV (x)
5.5
5.2
4.4
Div. Yield (%)
0.8
0.8
0.9
FCF Yield (%)
3.3
2.1
4.8
Shareholding pattern (%)
As On
Sep-20 Jun-20
Promoter
57.4
57.4
DII
21.9
22.0
FII
10.6
10.5
Others
10.1
10.1
FII Includes depository receipts
Op. performance driven by substantially lower other expenses
Sep-19
57.4
19.0
13.2
10.4
Highlights from management commentary
Valuation and view
Jinesh Gandhi - Research analyst
(Jinesh@MotilalOswal.com)
Vipul Agrawal - Research analyst
(Vipul.Agrawal@MotilalOswal.com)
30 October 2020
1
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
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Investors are advised to refer through important disclosures made at the last page of the Research Report.