Operating performance marginally below estimates; lower other income further dents profitability:
TVS Motor (TVSM)’s 3QFY2015 results have come in below our estimates as continued pressure on margins and lower other income impacted profitability.
Revenues grew 29% yoy to `2,653cr, mainly driven by volumes (up 26% yoy) while the realisation/vehicle grew marginally by 2% yoy. The OPM at 6% was marginally below our estimate of 6.3%. Intense competition in the two-wheeler segment coupled with higher marketing expenses due to new product launches, continued to impact profitability. Also, lower other income at `5.8cr (down 25% yoy), further dented profitability. Consequently, the Net profit at `90.2cr was lower than our estimate of `98cr.
Outlook and valuation:
TVS is likely to continue gaining market share in the two-wheeler space on back of new product launches and expanding geographical presence. Also the three-wheeler segment is expected to report robust growth due to introduction of a new diesel vehicle and increasing geographical reach. Further, the realization/vehicle is likely to improve given the increased proportion of the non-moped segment. We expect TVS’s revenues to grow at a 20% CAGR over FY2015-2017. Its margins are also likely to improve as volumes pick up, given the benefits of operating leverage, gradual reduction in marketing expenses and reduction in material prices due to better vendor negotiations. We expect TVS to report a PAT CAGR of 60% over the FY2015-2017 period. We upgrade our rating on the stock to Accumulate with a target price of `313 (based on 16x FY2017 earnings).
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