Buy TVS Shrichakra; target of Rs 1040: Angel Broking

Angel Broking research report on TVS Shrichakra

TVSSL is part of the TVS Group. The company is a leading manufacturer of two-wheeler and three-wheeler tyres and enjoys a market share of 25% (FY2011). The company manufactures a complete range of two-wheeler and three-wheeler tyres for the domestic market. For the export market, the company manufactures industrial pneumatic tyres, farm and implements tyres, skid steer tyres,

multipurpose tyres and floatation tyres, among others. TVSSL’s manufacturing units are located at Madurai, Tamil Nadu and Pantnagar, Uttarakhand rolling out ~192lakh tyres per year. With a network of over 2,400 dealers and 34 depots across the country, the company is a major supplier to TVS Motors, Hero MotoCorp, HMSI, Bajaj Auto, LML, Piaggio, Atul Auto Ltd., Mahindra 2Wheelers and India Yamaha Motor. The company also exports to the US, Europe, South America, Africa and Australia.

Due to improvement in the 2W industry, we expect the top-line of the company to grow at a CAGR of 13.3% over FY2014-16E to `2,131cr. We expect the operating margin to improve to 8.6% in FY2016E on the back of lower rubber prices and improvement in market share in the aftermarket segment. Consequently, the net profit is expected to be at `89cr in FY2016E. At the current market price, the stock is trading at a PE of 7.7x its FY2016E earnings. We have a Buy rating on the stock with a revised target price of `1,040 based on a target PE of 9.0x for FY2016E.

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