Buy TVS Srichakra; target of Rs 2228: Angel Broking

Angel Broking's report on TVS Srichakra

For 4QFY2015, TVS Srichakra (TVSSL) reported a good set of numbers. Its top-line for the quarter improved marginally by 1.8% yoy to Rs 465cr. The benefit from the low raw material prices has resulted in net raw material cost coming down by 863bp yoy to 56.1% of sales. Employee and other expenses rose by 233bp yoy and 112bp yoy to 9.2% and 20.9% of sales respectively. The EBITDA margin expanded by 518bp yoy to 13.8%, beating our estimate of 12.4%. The depreciation expense increased drastically by 222.3% yoy during the quarter to Rs 19cr; but at the same time, interest expense came down by 53.1% yoy to Rs 4cr owing to reduction in debt. Consequently, the net profit grew by 56.9% yoy to Rs 34cr vis-à-vis our expectation of Rs 31cr.

Outlook and valuation: "We expect TVSSL’s top-line to grow at a CAGR of 12.3% over FY2015-17E to Rs 2,389cr. We expect the operating margin to improve to 12.1% in FY2017E 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 Rs 155cr in FY2017E. At the current market price, the stock is trading at a PE of 9.3x its FY2017E earnings. We have a Buy rating on the stock with a revised target price of Rs 2,228 based on a target PE of 11.0x for FY2017E earnings", says Angel Broking research report.

For all recommendations, click here

Read More