Buy TVS Motor; target Rs 68.10: BP Equities

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Buy TVS Motor; target Rs 68.10: BP Equities

BP Equities is bullish on TVS Motor Company and has recommended buy rating on the stock with a target price of Rs 68.10 in its February 2, 2012 research report.

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BP Equities is bullish on TVS Motor Company and has recommended buy rating on the stock with a target price of Rs 68.10 in its February 2, 2012 research report.

"TVS Motor Company Ltd. (TVS) reported a 7.0% YoY increase in net revenues to Rs 17.6 bn which was inline with our estimate of Rs 17.9 bn in Q3FY12. On a sequential basis, revenue growth decreased by 11.5% in the same quarter. TVS reported ~45bps YoY increase in EBITDA margin to 6.5% mainly due to lower raw material & employees expenses as a percentage of sales. Raw material expenses as a percentage of sales decreased by ~100bps YoY to 72.7% and employees expenses as a percentage of sales decreased marginally by ~15bps YoY to 5.1% in Q3FY12. Adjusted Net profit increased marginally by 1.4% YoY to 565.0 mn during the quarter. Adjusted net profit margin decreased marginally by ~20bps YoY to 3.2% in Q3FY12. Market share in motorcycle and Scooter segment declined by 2.8%/3.6% QoQ to 4.8% and 19.3% respectively in Q3FY12."

"In Q3FY12, TVS reported a moderate growth of 7.0% YoY in top-line to Rs 17.6 bn mainly due to a 1% volume growth to 529,681 units. We expect TVS to continue its volume momentum on the back of existing brands and upcoming new launches (new version of Apache & new Scooty) in Scooter and Motorcycle segments in Q4FY12. EBITDA margin expanded by ~100bps YoY increase to 6.5% due to lower raw material & employee expenses as a percentage of sales. PAT increased marginally by 1.4% YoY to 565.0 mn which was below our estimate of Rs 608 mn during the quarter. Adjusted net profit margin declined by 20bps YoY to 3.2% in Q3FY12. The company is focusing on higher margin segments like three wheeler as margins in Three wheeler segment are more than 25% which is much higher than the company's EBITDA margin of 6.5% in Q3FY12. In addition, the company has planned to become debt free company by FY14 end. We expect interest payment to reduce significantly on pre-payment of loans. Therefore, we believe net profit margin to expand gradually by 60bps YoY to 3.7% in FY13."

"The stock is currently trading at FY13 P/E multiple of 7.7x and available at ~55% discount to its FY13 peer group average of 13.9x. We believe valuations are attractive considering its established brand in Scooter segment, expected margin improvement and its relative earning multiple. However, we believe the stock should trade below its peer group average considering size discount, market share decline as well as lower margins compared to its peers. We have given a target PE multiple of 10x to value the stock and arrived at a target price of Rs 68.10 which offers 30% upside potential. Buy the stock," says BP Equities research report.

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