TVS MOTORS FY16
TVSL’s FY16 annual report highlights its industry-leading revenue
growth of 12.0% and PBT growth of 32.8%, led by standalone
operations. However, Indonesian subsidiaries remained a drag (loss of
INR0.7b). Although improving YoY, EBIDTA margins at 6.6% remained
much lower than the peer range of 15%-21%, primarily on account of
lower gross margins (at 29.9% v/s peer range of 32-33%) and higher
advertising spends (at ~6.3% of revenue v/s peer range of 1.9-2.5%). FCF
normalized to INR3.3b (FY15: -INR3.1b) due to a decrease in loans and
advances by INR1.5b and an improvement in the cash conversion cycle
to -10 days, partially offset by higher capex of INR4.6b (FY15: INR3.4b).
Over the last five years, 57% of cash generated have been utilized for
capex, while fixed asset turnover remained low at 6x. Investments in
non-core assets (investments and cash) stood at INR7.0b, 48% of NW
generated a yield of 6.7%; they primarily comprised of INR5.5b invested
in preference shares of TVS Motor Services (unrelated party). Low asset
turns and margins have dragged RoCE, which has remained muted at
16.8%. Debt stood at INR10.9b with average borrowing cost of 9.4%.
The
ART
of annual report analysis
Industry leading revenue growth
A
NNUAL
R
EPORT
T
HREADBARE
27 July 2016
at 12% v/s 4-5% for peers.
Lower gross margins and higher
adv. spends leads to lower
EBITDA margins v/s peers.
Non-core assets at INR7b (48%
of NW), yields 6.7% returns while debt at
INR10.9b has adj. cost of 9.4%.
Stock Info
Growth stronger than peers:
In FY16, TVSL reported industry-
leading revenue growth of 12% (to INR115.2b) and PBT growth
of 32.8% (to INR5.1b) on the back of superior volume growth of
6.3% led by the standalone entity. Losses of subsidiaries
increased to INR460m (FY15: INR -155m), mainly due to higher
loss in the Indonesian subsidiary of INR716m (FY15: INR392m).
Sustained low margins:
EBIDTA margins improved marginally to
6.6% (FY15: 5.9%) on the back of benign commodity prices, but
are relatively lower than peers, primarily on account of (a)
lower gross margins at 30% v/s peer range of 29.9-33.6% (owing
to lower revenue mix from premium segments), and (b) higher
advertising, publicity and marketing expenditure at 6.3% of
revenue v/s peer range of 1.9-2.5%.
Working capital changes cushion cash flows:
FCF normalized to
INR3.3b (FY15: -INR3.1b), primarily due to a decline in the cash
conversion cycle to -10 days, mainly led by a fall in inventory to
46 days and a decline in loans and advances by INR1.5b. This
was partly compensated by an increase in capex to INR4.6b.
Capex forms major chunk of cash utilization, but FA turnover
low:
Over the last five years, ~57% of funds generated have
been utilized for capex. However, fixed asset turnover remained
low at 6x (~half of peers).
Non-core assets rise, remain a drag on RoCE:
Investments in
non-core assets stood at 48% of NW, with INR5.5b invested in
preference shares of TVS Motor Services (unrelated party; is the
holding company of the financing arm of TVSL). Investment
yield increased to ~6.7% (FY15: 4.0%). Debt stood at INR10.9b
(FY15: INR11.2b). Average borrowing cost adjusted for
concessional loans stood at 9.4%
. Low asset turns and margins
have dragged RoCE, which remained muted at 16.8%.
Bloomberg
CMP (INR)
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b) / M.Cap. (USD b)
TVSL IN
288
447.5
341/ 201
-9/-16/17
136.7/2.0
Financial summary (INR b)
Y/E Mar
Sales
EBITDA
Adj. PAT
EPS (INR)
EPS Gr. (%)
BV/Sh (INR)
P/E (x)
P/BV (x)
EV/EBITDA (x)
2016
112.4
7.5
4.3
9.1
24.2
40.8
31.6
7.1
19.2
2017E
129.9
9.7
5.8
12.3
34.8
49.7
23.5
5.8
14.2
2018E
147.0
12.2
7.6
16.1
31.2
62.2
17.9
4.6
11.0
E: MOSL Estimates
Auditor’s name
V. Sankar Aiyar & Co
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ART|
TVS Motors FY16
ART #1
ACCOUNTING / AUDITING MATTERS
Impressive growth…
TVSL reported industry-leading revenue growth of 12% to INR 115.2b (v/s 4% for
HMCL and 5% for BJAUT) on the back of better-than-peers volume growth of
6.3%.
Growth in volumes was driven by Scooters (+15.8%), where exports grew 79.2%
to 38,930 units (FY15: 21,729 units). Motorcycle sales volume growth remained
strong at 6.8%. Mopeds saw de-growth of 2.6% in volumes.
Exports, which contribute ~17% of volumes, grew 9.6% and domestic sales
increased 5.6%.
Further, PBT grew 32.8% YoY (to INR5.1b), the highest among peers (average of
~25%).
Exhibit 2: …so is PBT growth
Exhibit 1: TVSL’s revenue growth highest among peers…
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
Exhibit 3: Scooter sales drive volumes
Particulars
Domestic
Export
Motorcycles
Domestic
Export
Mopeds
Domestic
Export
Scooters
Domestic
Export
Three Wheelers
Total Domestic Volume
Total Export Volume
Total Vehicles sold
FY15 (‘000)
660.4
291.8
952.2
748.6
10.0
758.6
679.9
21.7
701.7
17.5
90.4
108.0
2106.5
414.0
2520.5
FY16 (‘000)
712.0
304.8
1016.8
723.8
14.8
738.5
773.6
38.9
812.5
15.5
95.3
110.8
2224.9
453.8
2678.7
Growth
7.8%
4.4%
6.8%
-3.3%
47.9%
-2.6%
13.8%
79.2%
15.8%
-11.5%
5.4%
2.6%
5.6%
9.6%
6.3%
Source: SIAM, MOSL
27 July 2016
2

ART|
TVS Motors FY16
Exhibit 4: Volume growth superior v/s peers
Source: SIAM, MOSL
…but more needs to be done on margins front
In FY16, EBITDA margins improved marginally to 6.6% (FY15: 5.9%), benefiting
from benign commodity prices, partially offset by an increase in operating and
administrative expenditure.
TVSL’s EBITDA margins are much lower than peers, primarily on account of (a)
lower gross margins (owing to a lower revenue mix from premium segments),
and (b) higher advertising, publicity and marketing expenditure.
Commodity prices fell in FY16, resulting in gross margin expansion of 118bp (to
30%) v/s BJAUT’s 235bp (to 33.6%) and HMCL’s 410bp (to 32.5%).
Advertisement, publicity and marketing expenses increased 28% YoY to INR7.3b
(6.3% of revenues). This is much higher than peers like BJAUT (1.9% of revenues)
and HMCL (2.5%).
Further, BJAUT and HMCL being cash rich generated higher other income of
3.6% and 1.4% of revenues, respectively, aiding their PAT margins.
Exhibit 5: EBITDA margins remain low
Particulars
Net Revenue (Operations)
Raw Materials Consumed
Gross Margin
Operating and Administrative Expenses
Personnel Cost
EBITDA
Depreciation
EBIT
Financial Charges
EBT
Other Income
PBT (Before Exceptional Items)
Exceptional Items
PBT
Tax
PAT
FY15
100.4
73.0
27.5
15.5
5.9
6.1
1.5
4.5
0.3
4.3
0.3
4.6
-
4.6
1.1
3.5
Standalone
%
100.0
72.7
27.3
15.4
5.9
6.0
1.5
4.5
0.3
4.2
0.3
4.5
0.0
4.5
1.1
3.5
FY16
112.4
80.3
32.2
18.0
6.6
7.5
1.9
5.6
0.5
5.1
0.5
5.7
-
5.7
1.3
4.3
%
100.0
71.4
28.6
16.0
5.9
6.7
1.7
5.0
0.4
4.6
0.5
5.0
0.0
5.0
1.2
3.8
FY15
102.6
73.1
29.5
16.7
6.7
6.1
1.8
4.3
0.6
3.6
0.2
3.9
0.6
4.4
1.2
3.2
Consolidated
%
FY16
100.0 115.2
71.3
80.7
28.7
34.4
16.3
19.4
6.5
7.4
5.9
7.6
1.7
2.2
4.2
5.4
0.6
0.7
3.6
4.7
0.2
0.4
3.8
5.1
0.6
-
4.3
5.1
1.2
1.5
3.1
3.6
%
100.0
70.1
29.9
16.9
6.5
6.6
1.9
4.7
0.6
4.1
0.3
4.4
0.0
4.4
1.3
3.2
Source: Company Annual Report, MOSL
27 July 2016
3

ART|
TVS Motors FY16
Exhibit 6: TVSL – higher operating & admin expenses; lower gross margins v/s peers
TVS
Particulars
Net Revenue (Operations)
Raw Materials Consumed
Gross Margin
Operating and Administrative Expenses
Personnel Cost
EBITDA
Depreciation
EBIT
Financial Charges
EBT
Other Income
PBT (Before Exceptional Items)
Exceptional Items
PBT
Tax
PAT
Share of profit of associates
PAT
Standalone
FY15
FY16
100.0%
100.0%
72.7%
71.4%
27.3%
28.6%
15.4%
16.0%
5.9%
5.9%
6.0%
6.7%
1.5%
1.7%
4.5%
5.0%
0.3%
0.4%
4.2%
4.6%
0.3%
0.5%
4.5%
5.0%
0.0%
0.0%
4.5%
5.0%
1.1%
1.2%
3.5%
3.8%
0.0%
0.0%
3.5%
3.8%
Consolidated
FY15
FY16
100.0%
100.0%
71.3%
70.1%
28.7%
29.9%
16.3%
16.9%
6.5%
6.5%
5.9%
6.6%
1.7%
1.9%
4.2%
4.7%
0.6%
0.6%
3.6%
4.1%
0.2%
0.3%
3.8%
4.4%
0.6%
0.0%
4.3%
4.4%
1.2%
1.3%
3.1%
3.2%
0.0%
0.0%
3.1%
3.2%
BJAUT
HMCL
Consolidated
Consolidated
FY15
FY16
FY15
FY16
100.0%
100.0%
100.0%
100.0%
68.7%
66.4%
71.6%
67.5%
31.3%
33.6%
28.4%
32.5%
8.1%
8.5%
11.4%
12.5%
4.2%
4.0%
4.3%
4.7%
19.0%
21.1%
12.7%
15.3%
1.2%
1.4%
2.0%
1.6%
17.8%
19.7%
10.7%
13.8%
0.0%
0.0%
0.0%
0.0%
17.8%
19.7%
10.7%
13.7%
2.7%
3.6%
1.8%
1.4%
20.5%
23.3%
12.5%
15.1%
-1.6%
0.0%
-0.5%
0.0%
18.9%
23.3%
12.0%
15.1%
5.9%
7.6%
3.4%
4.4%
13.0%
15.7%
8.5%
10.7%
1.0%
1.0%
0.0%
0.1%
14.0%
16.7%
8.5%
10.8%
Source: Company Annual Report, MOSL
Exhibit 7: TVSL
Exhibit 8: HMCL
Exhibit 9: BJAUT
*Net of recoveries
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
Indonesian subsidiary drags performance
Aggregate losses of subsidiaries increased to INR459.3m (FY15: loss of
INR154.5m), mainly due to the dismal performance of its Indonesian subsidiary.
Exhibit 10: Subsidiary performance dragged by Indonesian arm (INR m)
Subsidiary
Sundaram Auto Components Ltd.
TVS Housing Ltd.
TVS Motor (Singapore) Pte. Ltd.
TVS Motor Company (Europe) B.V
PT. TVS Motor Company Indonesia
Sundaram Holding USA Inc.
Sundaram Business Development Consulting (Shanghai) Co. Ltd.
Total
FY15
FY16
Net Worth Revenue PAT Net Worth Revenue
1111.6
21373.4 253.7
1301.7
27370.1
3.4
114.4
2.7
5.4
172.3
1952.2
43.6
-7.4
1944.7
42.8
1145.1
0.5
-3.5
32.8
0.2
562.0
1166.5 -392.3
816.9
890.3
0.0
0.0
0.0
-20.5
0.0
1.7
0.0
-7.7
1.8
0.0
4776.0
22698.4 -154.5
4082.8
28475.7
PAT
286.4
2.0
-7.8
-3.9
-715.7
-20.3
0.0
-459.3
Source: Company Annual Report, MOSL
27 July 2016
4

ART|
TVS Motors FY16
FCF cushioned by WC changes
In FY16, TVSL’s earnings to cash flow conversion normalized to 134%, primarily
on account of an improvement in the cash conversion cycle to -10 days (FY15: -5
days) and a reduction in loans and advances.
FCF post interest normalized to INR3.3b (FY15: INR-3.1b), but was impacted by
higher capex at INR 4.6b (FY15: INR3.4b) relating to capacity expansion due to
new product launches and BMW alliance.
Exhibit 11: FCF normalizes on improved working capital requirements (INR b)
Particulars
PBT
Add/(Less): Non-cash adjustments
Add/(Less): Non-operating adjustments
Less: Direct taxes paid
Operating profit before w/cap changes
Trade receivables
Inventories
Other current assets
Loans and advances
Trade payables
Other current liabilities
Working capital Changes
Cash generated from operations
Less: Financial cost
Cash generated from operations post interest
Less: Capital expenditure
Free cash flows post interest
FY12
2.3
1.3
0.7
-0.7
3.5
0.6
-0.8
0.0
0.0
0.5
0.9
1.3
4.9
-0.8
4.0
-4.4
-0.4
FY13
2.9
1.9
0.8
-0.6
4.9
-0.8
0.5
-0.3
-0.4
1.0
-0.3
-0.3
4.6
-0.9
3.7
-1.1
2.6
FY14
3.1
1.5
0.0
-1.3
3.3
-0.3
-0.3
-0.1
-0.5
1.8
0.9
1.4
4.7
-0.5
4.2
-2.7
1.5
FY15
4.4
1.8
-0.3
-1.6
4.3
-0.6
-3.5
0.1
-2.7
2.6
0.7
-3.5
0.8
-0.5
0.4
-3.4
-3.1
FY16
5.1
2.3
0.3
-1.6
6.1
-0.8
0
0.1
1.5
1.0
0.5
2.4
8.5
-0.6
7.9
-4.6
3.3
Source: Company Annual Report, MOSL
Exhibit 12: Earnings to cash flow conversion normalizes
Source: Company Annual Report, MOSL
High payable days support cash conversion
TVSL’s cash conversion improved to -10 days (FY15: -5 days), primarily on
account of the decline in inventory days from 51 in FY15 to 46 in FY16.
However, the cash conversion cycle for TVSL is much higher than peers,
primarily on account of higher inventory days, partially offset by higher payable
days.
27 July 2016
5

ART|
TVS Motors FY16
Exhibit 13: Higher payables support cash conversion; inventory days remain elevated
Particulars
Inventory Days
Receivable Days
Vendor Advance
Advance from Customers
Bill Discounting
Payable Days
Cash conversion cycle
FY14
41
15
2
3
4
64
-5
TVS
FY15
51
15
3
3
5
76
-5
FY16
46
16
2
3
2
73
-10
FY14
17
14
-
8
-
56
-33
BJAUT
FY15
20
12
-
7
-
44
-19
FY16
17
12
-
3
-
49
-23
FY14
13
13
2
2
-
46
-20
HMCL
FY15
16
18
2
1
-
53
-18
FY16
DNA
DNA
DNA
DNA
DNA
DNA
DNA
Source: Company Annual Report, MOSL
Exhibit 14: Inventory of finished goods halves
Particulars
Raw materials and components
Goods-in-transit - Raw materials and components
Work-in-process
Finished goods
Stock-in-trade
Goods-in-transit - stock-in-trade
Stores and spares
Dies, moulds and tools
Total
FY15
3.4
0.9
0.5
2.3
1.2
0.6
0.3
0.9
10.2
FY16
3.7
1.0
0.7
1.2
1.5
0.3
0.4
1.3
10.1
Change
0.3
0.1
0.2
-1.1
0.3
-0.3
0.0
0.4
Finished goods inventory
falls.
Source: Company Annual Report, MOSL
Capex utilizes 57% of generated funds
Over the last five years, TVSL has generated 83% of its cash from operations.
57% of this cash was used to fund capex, while 18% was distributed as dividend
(maintaining a payout ratio of 35-56%).
The fixed asset turnover ratio has remained low at 6x, compared to 11-12x for
peers.
We highlight that the proportion of funds utilized for investments has been low
over the last five years compared to the prior years. This has led to 48% of net
worth in FY16 being invested in cash and investments.
Exhibit 16: Capex utilizes most of the funds
FY12-FY16
Exhibit 15: Majority of funds generated from CFO
FY12- FY16
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
27 July 2016
6

ART|
TVS Motors FY16
Exhibit 17: FA turnover ratio lower than peers (x)
Particulars
TVS
BJAUT
HMCL
FY12
5
13
6
FY13
5
12
7
FY14
5
11
10
FY15
7
11
11
FY16
6
12
DNA
Source: Company Annual Report, MOSL
Exhibit 18: Payout ratio remains high
Source: Company Annual Report, MOSL
Lower margins put pressure on return ratios
Historically, TVSL has generated lower RoE than its peers due to lower PAT
margins (at a mere 3.2% v/s 16.7% for BJAUT and 10.8% for HMCL).
Even RoIC of TVSL has remained low at 22%.
Exhibit 19: Lower PAT margins put pressure on RoEs
Particulars
Profit Margin
Total Assets T/o
Total Assets to Equity
ROE
FY14
2.0%
2.4
3.7
17.1%
TVS
FY15
2.6%
2.5
3.6
24.0%
FY16
3.2%
2.4
3.5
27.4%
FY14
16.8%
1.4
1.5
37.1%
Bajaj Auto
FY15
15.6%
1.4
1.5
31.7%
FY16
16.7%
1.4
1.3
31.3%
FY14
8.3%
2.4
2.0
38.6%
Hero
FY15
9.1%
2.6
1.8
40.3%
FY16
10.8%
2.45
1.61
41.6%
Source: Company Annual Report, MOSL
Exhibit 20: Return ratios remain subdued
Source: Company Annual Report, MOSL
27 July 2016
7

ART|
TVS Motors FY16
Fresh investments in preference shares increase non-core assets
Cash and investments (excluding subsidiaries) stood at INR7b, 48% of adjusted
(for revaluation reserve) net worth (FY15: INR5.7b, 46% of Net worth).
TVSL increased its stake in preference shares of TVS Motor Services Limited
(unrelated party) to INR5.5b (FY15: INR4.5b). TVS Motor Services holds a 92.8%
stake in TVS Credit Services Limited.
Exhibit 21: 48% of net worth in non-core assets
Source: Company Annual Report, MOSL
Exhibit 22: Yield on cash and investment remains subdued
Source: Company Annual Report, MOSL
Adjusted borrowing cost higher
Borrowing cost was a mere 6.1%, mainly due to interest-free sales tax deferral
loans of INR2.3b (21% of total loans).
Adjusting for sales tax deferral loan (which is interest free) and soft loan from a
state-owned corporation (usually given at a lower rate), borrowing cost stood at
9.4%.
Exhibit 23: Borrowing cost remains low due to sales tax deferral loans (INR b)
Finance Cost
Sales tax deferral loan from Karnataka Government
Soft loan from a state owned corporation
Loans from Banks, NBFC etc.
Total Debt
Average borrowing cost
Borrowing cost considering only loans from banks, NBFC etc.
FY12
0.9
2.2
0.8
10.0
13.0
7.5%
9.9%
FY13
1.0
2.5
1.5
6.7
10.7
8.7%
12.4%
FY14
0.8
FY15
0.6
FY16
0.7
2.4
2.3
2.3
1.5
1.6
1.6
3.4
7.3
7.1
7.3
11.2
10.9
8.9%
6.7%
6.1%
15.9%
11.7%
9.4%
Source: Company Annual Report, MOSL
27 July 2016
8

ART|
TVS Motors FY16
Significant purchases from
related parties continued
Exhibit 24: Related party transactions (INR m)
Particulars
Sundaram-Clayton Limited
Lucas-TVS Limited
Lucas Indian Service Limited
Others
Total
As a % of COGS
FY15
3707
721.9
22.8
52.6
4504.3
6.2%
FY16
4112
790.3
49.5
54.9
5006.7
6.2%
Source: Company Annual Report, MOSL
Exhibit 25: R&D investment continues to rise
Source: Company Annual Report, MOSL
Impact of Ind AS
Optical impact on margins:
Grossing of excise and netting of incentives/
discounts from revenues will optically impact margins.
Fair valuation of investments:
Depending on the classification of investment as
FVTPL or FVOCI, investments will be fair valued periodically. Management
highlighted that, while investments in TVS Motors Services are optionally
convertible, they will be fair valued under Ind-AS and are not consolidated
currently.
Receivables may remain in books even after discounting:
TVS has discounted
receivables of INR0.8b (FY15: INR1.5b), which will not be derecognized. Adjusted
for the same, D/E ratio increases marginally to 0.8x (reported: 0.7x) and RoCE
falls 70bp to 16.1% (reported: 16.8%).
Sales tax deferral loans/loans from state governments
will be recognized at the
present value of future cash flows. TVS has INR3.9b of such loans, which would
lead to an increase in other operating revenue on the one hand and finance cost
on the other.
27 July 2016
9

ART|
TVS Motors FY16
ART #2
GOVERNANCE MATTERS
Most directors regular in attending board meetings
TVSL is regular in calling board meetings as per the prescribed laws. In FY16, five
board meetings were held.
All directors attended at least 50% of the meetings.
Exhibit 26: Directors regular in attending board meetings
Name of the Director
Venu Srinivasan
H Lakshmanan
T Kannan
C R Dua
R Ramakrishnan
Prince Asirvatham
Hemant Krishan Singh
Sudarshan Venu
Dr Lakshmi Venu
Category
CMD
NE-NID
NE-ID
NE-ID
NE-ID
NE-ID
NE-ID
JMD
NE-NID
Board Meeting
Held
Attended
5
3
5
5
5
3
5
5
5
5
5
5
5
4
5
5
5
4
Source: Company Annual Report, MOSL
Managerial Remuneration
TVS paid a managerial remuneration of INR243.2m, 5% of PBT (FY14: INR155.2m,
4% of PBT).
Exhibit 27: Managerial Remuneration rises (INR m)
Particulars
Managerial Remuneration
PBT
As a % of PBT
FY15
155.2
3,858.9
4%
FY16
243.2
5,124.2
5%
Source: Company Annual Report, MOSL
27 July 2016
10

ART/THEMATIC GALLERY
ART
ART
THEMATIC

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Motors FY16
ART|
TVS
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TVS Motors
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