30 January 2014
3QFY14 Results Update | Sector:
Automobiles
TVS Motor Company
BSE SENSEX
20,647
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
6,120
TVSL IN
475.1
33.7/0.5
82/28
-8/124/58
CMP: INR71
TP: INR100
Buy
Strong quarter, scooter demand robust, multiple launches to support growth
TVS Motor’s (TVSL) 3QFY14 results were above estimate. Net sales grew by 14.4% YoY
(+3.5% QoQ) to INR20.6b (est. INR19.7b). EBITDA margin improved by 10bp QoQ to
6% (+10bp YoY). Interest cost continued on the downward trend, with 55% YoY
decline. EBITDA growth of 16% coupled with reduction in interest rate drove 31% YoY
growth in PAT to INR688m (est. INR651m).
Management commentary:
a)
response
to
Jupiter
scooter robust across markets, b)
expect scooter volumes at 50,000 units/m by Mar-14 v/s ~41,000 in 3Q. TVS is scaling
up scooter production capacity to 75,000/m, c) TVS will showcase a new motorcycle
and scooter in the Auto Expo (Feb-2014), d) it expects Indonesia FY14 volumes to
improve with the recent launch of
TVS Dazz
(Skubek), e) management guides
standalone business to be debt free in FY15 and f) the tie-up with BMW is on track and
expects to launch the first product in 2HFY15.
Valuation and view
TVSL is well positioned to benefit from the scooterization wave with its complete
scooter portfolio. Over the next 12-18 months, company plans to launch multiple
products across segments to reinforce and fill gaps in the portfolio.
Expect earnings CAGR of 34%, FCF of 25% over FY14E-16E, with return ratios (RoE)
improving from 19.9% in FY14E to 25.5% in FY16E. We expect TVSL to be net cash
by FY16E, driven by strong FCF.
We upgrade the FY14E/15E/16E EPS by ~4.1%/5.9%/5.9% driven by higher
realizations in 3Q performance. The stock trades at 12.8x/8.9x/7.1x
FY14E/15E/16E EPS of INR5.5/7.9/10 respectively. Maintain
Buy
with a target price
of INR100 (10x FY16E EPS).
Financials & Valuation (INR Million)
Y/E MAR
Net Sales
EBITDA
Adj PAT
EPS (INR)
Gr (%)
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
2014E 2015E 2016E
80,007 96,330 110,661
4,720
2,634
5.5
45.5
19.9
20.1
12.8
2.4
6,117
3,765
7.9
42.9
35.6
24.1
25.4
8.9
2.0
7,436
4,741
10.0
25.9
42.7
25.5
28.0
7.1
1.7
BV/Sh.(INR) 30.0
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 3982 5416
Chirag Jain
(Chirag.Jain@MotilalOswal.com); +91 22 3982 5418
Investors are advised to refer through disclosures made at the end of the Research Report.

TVS Motor Company
Net sales grew by 14.4% driven largely by realizations; export revenues
growth of 69%, exports contribution at 21% of revenues
Net sales grew by 14.4% YoY (+3.5% QoQ) to INR20.6b (est INR19.7b).
Exports revenue for 3Q stood at INR4.4b v/s INR2.6b (in 3QFY13) and INR4.5b in
2QFY14.
Export realizations stood at INR62/USD v/s INR60/USD in 2QFY14.
Volumes were largely flat at 519,308 units (as per SIAM), while realizations
improved by 14.2% YoY (+3.5% QoQ).
Volume growth flat due to decline in mopeds
Net sales growth driven by realization increase
Source: MOSL, Company
Source: MOSL, Company
Mix shifting in favour of scooters, EBITDA margins steady at 6%
With success of Jupiter scooter and continued healthy growth in scooter
industry, the share of scooters has been on a rising trend.
On the other hand, weak demand from southern region has led to reduction in
share of mopeds.
EBITDA margins improved by 10bp QoQ to 6% (+10bp YoY).
Interest cost continued their downward trend with 55% YoY decline (stable
QoQ).
EBITDA growth of 16% coupled with reduction in interest rate drove 31% YoY
growth in PAT to INR688m (est INR651m).
EBITDA margins steady at 6%
Volume mix shifting in favour of scooters led by Jupiter (%)
Source: Company, MOSL
Source: Company, MOSL
30 January 2014
2

TVS Motor Company
Sharp reduction in interest cost continue
EBITDA growth & interest cost decline drive 31% PAT growth
Source: Company, MOSL
Source: Company, MOSL
Management commentary on results
TVS is scaling up scooter
production capacity to
75k/m.
Management expects
standalone business to be
debt free in FY15.
The tie-up with BMW is on
track and expect to launch
first product from BMW tie
up in 2HFY15.
Management indicated 8-10% volume growth for 4QFY14. Response to Jupiter
scooter (launched in Sept-13) has been robust and is now available across India.
Expect scooter segment volumes at 50k units/month by Mar-14 v/s. ~41k run-
rate in 3Q, led by Jupiter production ramp-up and launch of new Scooty in
4QFY15 (with 110cc variant). TVS is scaling up scooter production capacity to
75k/m.
TVS will showcase one new motorcycle and scooter in Auto Expo (Feb-2014).
TVS indicated that they will re-launch Victor motorcycle in H1FY15.
Growth in exports have been led by all major markets, the trend is expected to
continue in FY15. Exports revenue growth of 69% YoY; exports now at 21% of
revenues.
Domestic 3W market share to improve from current 13% to 20% led by industry
demand revival, superior product v/s competition and launch of diesel 3W
(already launched in Kerala market).
On 3W exports, the company expects to sustain the high growth momentum
driven by continued growth in existing markets coupled with entry into new
markets.
Mopeds have been impacted (YTD decline of 10.5%) by unfavourable monsoon
last year, particularly in Southern region which have impacted the rural and
agriculture economy.
Southern region (particularly Tamil Nadu) continues to remain weak. However,
with relatively better monsoon, it is expected to revive over the near term.
It expects Indonesia FY14 volumes to improve with the recent launch of TVS
Dazz (its first skubek launch in Indonesia). Dazz have sold 4k units since its
launch in Sep-13, with overall Indonesia volumes at 15.5k in 9MFY14.
Management expects cash breakeven in FY15 at 5k units/month run-rate. TVS
has infused INR251m in Indonesia venture in 9MFY14, mainly related to TVS
Dazz and plans to invest further INR200 mn in Q4FY14.
Interest bearing net debt on standalone books as of Dec-13 stood at INR1b,
while it had INR4b of interest free sales tax deferral loan. Management expects
standalone business to be debt free in FY15. Standalone capex would be INR2b
in FY14 (as guided earlier) on capacity expansion in 3Ws, new products and R&D
(including BMW).
30 January 2014
3

TVS Motor Company
The tie-up with BMW is on track and expect to launch first product from BMW
tie up in 2HFY15.
Valuation & view
TVSL is well positioned to benefit from the scooterization wave with its
complete scooter portfolio. Over the next 12-18 months, TVSL plans to launch
multiple products across segments to reinforce and fill gaps in product portfolio.
Any clarity on Indonesian operations (success of recent launch or closure of
operations) could also act as a re-rating trigger.
Expect earnings CAGR of 34%, FCF of 25% over FY14E-16E with return ratios
(RoE) improving from 19.9% in FY14E to 25.5% in FY16E. We expect TVS to be
net-cash by FY16E driven by strong FCF.
We upgrade our FY14E/15E/16E EPS by ~4.1%/5.9%/5.9% driven by higher
realizations in 3Q performance.
The stock trades at 12.8x/8.9x/7.1x FY14E/15E/16E EPS of INR5.5/7.9/10
respectively.
Maintain
Buy
with target price of INR100 (10x FY16E EPS)
Revised forecast (Standalone)
(INR M)
Volumes (units)
Net Sales
EBITDA
Net Profit
EPS (INR)
Rev
2,105
80,007
4,720
2,634
5.5
FY14E
Old Chg (%)
2,150
-2.0
78,524
1.9
4,594
2.8
2,532
4.1
5.3
4.1
Rev
2,434
96,330
6,117
3,765
7.9
FY15E
FY16E
Old Chg (%)
Rev
OldChg (%)
2,483
-2.0
2,713
2,766
-1.9
93,289
3.3 110,661 106,858
3.6
5,877
4.1
7,436
7,127
4.3
3,555
5.9
4,741
4,476
5.9
7.5
5.9
10.0
9.4
5.9
Source: Company, MOSL
30 January 2014
4

TVS Motor Company
TVS Motor Company: an investment profile
Company Background
TVS Motor Company is 4 largest two-wheeler company
in India. TVS Motor Company is the flagship company of
the 100 year old six billion USD TVS Group, which has
some 40 companies and holdings in the automotive
sector. TVS Motor Company offers the widest range of
product in the Indian two and three wheeler industry.
TVS Motor Company has international presence in more
than 50 countries in Asia, Africa and Latin America.
th
Recent developments
TVS recently launched Jupiter 110cc scooter have
received strong response across markets and is
currently under waiting
TVS would showcase two new products (one
motorcycle and another scooter) in Auto Expo 2014
Valuation and view
Key investment arguments
TVSL is well positioned to benefit from the
scooterization wave with its complete scooter
portfolio. Over the next 12-18 months, TVSL plans
to launch multiple products across segments to
reinforce and fill gaps in product portfolio.
EBITDA losses in Indonesia continue to reduce.
Expect earnings CAGR of 34%, FCF of 25% over
FY14E-16E with return ratios (RoE) improving from
19.9% in FY14E to 25.5% in FY16E. We expect TVS to
be net-cash by FY16E driven by strong FCF.
Increasing competitiveness in two-wheeler industry
could restrict pricing power.
Economic and political risk in key export markets.
The stock trades at 12.8x/8.9x/7.1x FY14E/15E/16E
EPS of INR5.5/7.9/10 respectively.
Maintain
Buy
with target price of INR100 (10x FY16E
EPS)
Sector view
Key investments risks
Long term demand drivers in place, driven by
increasing penetration in rural markets and
replacement demand from urban markets
2W export provides huge opportunity, with ~2x
India opportunity in the markets similar to India.
Industry dynamics favorable, with focus on
profitability rather than market share.
Comparative valuations
P/E (x)
EPS Gr (%)
RoE (%)
EV/EBITDA (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
Hero
18.3
13.4
6.8
36.1
42.1
47.6
10.4
9.0
Bajaj
14.3
12.1
18.4
18.6
37.2
36.6
9.0
7.1
TVS
12.8
8.9
45.5
42.9
19.9
24.1
7.9
5.6
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY14
FY15
5.5
7.9
Consensus
Forecast
3.9
4.3
Variation
(%)
42.6
83.4
Target price and recommendation
Current
Price (INR)
71
Target
Price (INR)
100
Upside
(%)
40.8
Reco.
Buy
Shareholding pattern (%)
Dec-13
Promoter
Domestic Inst
Foreign
Others
57.4
17.7
3.7
21.2
Sep-13
57.4
18.3
2.9
21.4
Dec-12
57.4
18.1
2.3
22.2
Stock performance (1-year)
30 January 2014
5

TVS Motor Company
Financials and valuation
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
2013
70,650
-1.1
4,090
5.8
1,304
2,786
480
246
916
1,636
476
29.1
1,160
1,810
-27.3
2014E
80,007
13.2
4,720
5.9
1,291
3,429
224
308
-303
3,815
954
25.0
2,861
2,634
45.5
(INR Million)
2015E
2016E
96,330 110,661
20.4
14.9
6,117
7,436
6.4
6.7
1,388
1,470
4,729
5,966
48
17
339
373
0
0
5,020
6,321
1,255
1,580
25.0
25.0
3,765
4,741
3,765
4,741
42.9
25.9
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2013
3.8
6.6
25.8
1.2
56.5
18.6
10.8
2.8
0.6
9.7
1.7
15.1
15.7
3.6
14.2
26.3
61.1
0.5
2014E
5.5
8.3
30.0
1.5
29.1
12.8
8.6
2.4
0.5
7.9
2.1
19.9
20.1
4.1
12.9
24.9
60.3
0.3
2015E
7.9
10.8
35.6
2.0
29.5
8.9
6.5
2.0
0.4
5.6
2.8
24.1
25.4
4.3
12.0
24.2
60.5
0.3
2016E
10.0
13.1
42.7
2.5
29.3
7.1
5.4
1.7
0.3
4.3
3.5
25.5
28.0
4.4
13.0
24.2
60.8
0.2
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2013
475
11,772
12,247
6,345
931
19,523
22,479
12,365
10,115
361
8,688
12,029
5,097
3,005
175
3,752
11,670
11,136
534
359
19,523
2014E
475
13,799
14,274
4,345
931
19,550
24,479
13,656
10,823
320
8,953
13,092
5,455
3,069
628
3,940
13,638
12,429
1,209
-546
19,550
(INR Million)
2015E
2016E
475
475
16,453 19,804
16,928 20,279
4,320
3,820
931
931
22,179 25,030
25,979 27,479
15,043 16,514
10,936 10,966
385
443
9,953 10,953
17,446 21,817
6,380
7,329
3,431
4,245
3,498
5,899
4,137
4,344
16,541 19,148
14,965 17,191
1,576
1,957
904
2,669
22,179 25,030
E: MOSL Estimates
Cash flow statement
Y/E March
OP/(Loss) before Tax
Depreciation
Others
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2013
1,628
1,076
0
327
527
800
4,181
-767
-295
77
-985
0
-276
-517
-715
-1,509
1,688
-2,077
-389
2014E
3,512
1,291
0
224
954
1,359
5,125
-1,959
-265
308
-1,916
0
-2,000
-224
-834
-3,058
151
175
325
(INR Million)
2015E
5,020
1,388
0
48
1,255
1,419
6,281
-1,565
-1,000
339
-2,227
0
-25
-48
-1,112
-1,184
2,870
628
3,498
2016E
6,321
1,470
0
17
1,580
637
6,493
-1,557
-1,000
373
-2,185
0
-500
-17
-1,390
-1,907
2,402
3,498
5,899
30 January 2014
6

TVS Motor Company
NOTES
30 January 2014
7

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3. Broking relationship with company covered
4. Investment Banking relationship with company covered
TVS MOTOR CO LTD
No
No
No
No
TVS Motor Company
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30 January 2014
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8