Accumulate TVS Srichakra; target of Rs 335: Angel Broking

“TVS Srichakra Ltd (TVSSL) reported a disappointing set of numbers, both on the revenue and the margin front. The company continued to report muted revenue growth during 1QFY2013 following a subdued performance in last three quarters. It posted a top-line of Rs361cr, an increase of 3.7% and 4.0% on a qoq and yoy basis respectively. The major disappointment was seen on the operating margin front which contracted by 212bp/354bp on a qoq/yoy basis and came at 5.3%. Depreciation stood at Rs6cr, an increase of 31.5%/14.6% on a qoq/yoy basis. Subsequently, the profit for the quarter witnessed a substantial dip of 81.3% qoq and 84.8% yoy to Rs2cr, 82.3% lower than our estimate of Rs10cr.”

“As the contribution from original equipment manufacturers (OEMs) in TVSSL’s revenue is ~58% (as per last quarter), the volume growth of the company is expected to be impacted in the near term because of the slowdown in demand for two and three-wheelers. We expect the volume growth for the current fiscal to remain muted at 4.7%. However, we believe the long-term structural growth drivers of the Indian automobile industry are intact, which should support a ~10% CAGR in auto volumes over FY2012-14E. Hence we expect the volume growth to bounce back to 10.4% in FY2014E.”

“We expect TVSSL to post a revenue CAGR of 8.5% over FY2012-14 to Rs1,643cr with an operating margin of 8.2% in FY2014E. On the profitability front, the company is expected to post a profit of Rs25cr and Rs43cr for FY2013E and FY2014E respectively. At the current market price, TVSSL is trading at 5.5x FY2014E earnings. We recommend Accumulate on the stock with a revised target price of Rs335, based on a target PE of 6x for FY2014E,” says Angel Broking research report. 

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