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TVS MOTOR EQUITY RESEARCH

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EquityResearch:TVSMotor
Current
P/E 52WeekHigh 52WeekLow
MarketPrice
430.70 155.85 442.80 277.95
532343
price pe high52 low52 >
TVSMotor
<

DateofResearch21January2016

PriceRs.274.20

About the Company

Establishesin1980,TVSMotorCompanyLimited(TVSMotorortheCompany)isthethirdlargesttwowheelermanufacturerinIndia.Thecompanysproduct
portfolioincludes:

MotorcyclesApacheSeriesRTR,Phoenix125,MAX4R,StarCity,Sport

VariomaticScootersJupiter,Wego,ScootyStreak,ScootyPep+

MopedsTVSXLSuper,TVSXLHeavyDuty.

STRENGTHS

IndiasDemographicAdvantage

Indiastwowheelerindustrywillcontinuetoexperienceincreaseindemand,formanyreasons.Firstly,thecountrysaspirationalyouthandtheirhighdisposable
incomeisasignificantgrowthdriver.Secondly,growingruralincomeacrossIndiahasincreasedthetwowheelersales.Finally,poorpublictransportandanurgent
needtoavoidurbancongestionhaveincreasedneedforaquickerandmoreaffordablemodeoftransport.

NewProductLaunches

ThecompanyhasdiversifieditspresencefrommotorcyclestoscootersinFY2015thiswillhelptheCompanytoincreaseitsmarketshareintwowheelersegment.Also
thecompanyhaslaunchedits110ccScootyZest(inthegirlsscootersegment)whichhashelpedtoincreasethesaleofscootersby48.9%.AlsoatieupwithBMW
Motorradtodevelopandmanufacturemotorcyclebelow500ccwillfurtherstrengthenitsproductportfolio.

CHALLENGES

StiffCompetitioninTwoWheelerSegment

TVSMotorfacesstiffcompetitionfromnewandexistingplayers.NewproductlaunchesbyHeroMotorCorp,Honda,YamahaandBajajAutoareexpectedoverthe
mediumtermandthiscouldputpressureonthedomesticmarketshareofthecompany.

Key Financial Figures

Consolidated (Rs.Cr)

Particulars FY2012 FY2013 FY2014 FY2015 FY2016

 TotalIncomefromOperations 7,419.84 7,406.22 8,379.01 10,311.68 11,516.34

Expenses 6,960.73 6,967.88 7,892.06 9,708.75 10,758.66

(https://www.sanasecurities.com)
EarningsBeforeOtherIncome,Interest,TaxandDepreciation 459.11 438.34 486.95 602.93 757.68
(OperatingProfit)

Depreciation 158.29 175.60 148.96 178.59 216.29

FinanceCosts 88.26 103.41 80.09 62.11 67.51

Otherincome 14.40 24.17 26.66 23.66 38.54

Exceptionalitems (92.78) (17.95) (58.27)

PBT 226.96 276.28 302.51 444.16 512.42

Tax 94.63 91.36 118.57 123.94 147.97

Extraordinaryitems (13.43) (2.94)

PAT(beforeMinorityInterestandshareofAssociates) 132.33 198.35 186.88 320.22 364.45

Profit/(loss)attributabletoMinorityInterest 0.46 0.96 1.17

Shareofprofit/(loss)ofAssociates 0.23 (0.33) (0.59) (8.04) (4.88)

ConsolidatedProfit/(Loss)fortheyear 131.64 197.72 186.30 328.26 369.33

Protability Analysis
Consolidated (%)

Particulars FY2012 FY2013 FY2014 FY2015 FY2016

OperatingProfitMarginRatio 6.19 5.92 5.81 5.85 6.58

NetProfitMarginRatio 1.78 2.68 2.23 3.11 3.16

Operatingprofitmarginisameasurementoftheproportionofacompanysrevenuethatisleftoverafterpayingforproductioncostssuchasrawmaterials,salariesand
administrativecosts.Netprofitmarginisarrivedatbydeductingnonoperatingexpensessuchasdepreciation,financecostsandtaxesoutofoperatingprofitand
showswhatisleftfortheshareholdersasapercentageofnetsales.Togethertheseratioshelpinunderstandingthecostandprofitstructureofthefirmandanalysing
businessinefficiencies.

ProfitabilityRatios(https://www.sanasecurities.com/netoperatingprofitmarginratio)

Key Balance Sheet Figures

SourcesofFunds/Liabilities (Rs.Cr)

Particulars FY2012 FY2013 FY2014 FY2015 FY2016

ShareCapital 47.51 47.51 47.51 47.51 47.51

Shareapplicationmoneypendingallotment

Reserves&Surplus 674.73 850.77 1,113.32 1,277.12 1,535.37

Networth(shareholdersfunds) 722.24 898.28 1,160.83 1,324.63 1,582.88

MinorityInterest 5.96 6.89

Longtermborrowings 874.46 845.68 517.76 560.29 508.72

Currentliabilities 1,605.39 1,471.34 1,757.09 2,470.97 2,596.48

Otherlongtermliabilitiesandprovisions 53.45 60.61 62.59 53.23 48.69

DeferredTaxLiabilities 55.06 81.80 133.31 160.22 184.81

TotalLiabilities 3,316.56 3,364.60 3,631.58 4,569.34 4,921.58

ApplicationofFunds/Assets (Rs.Cr)

Particulars FY2012 FY2013 FY2014 FY2015 FY2016

 FixedAssets 1,657.94 1,629.18 1,565.39 1,729.59 1,996.90

NoncurrentInvestments 318.43 347.71 438.65 539.34 648.40

(https://www.sanasecurities.com)
Currentassets 1,311.49 1,348.23 1,583.45 2,198.05 2,183.22

Longtermadvancesandothernoncurrentassets 28.70 39.48 44.09 102.36 93.06

Totalassets 3,316.56 3,364.60 3,631.58 4,569.34 4,921.58

Efciency Analysis

Particulars FY2012 FY2013 FY2014 FY2015 FY2016

ROCE 28.65 25.04 29.01 31.99 36.22

ROE/RONW 18.23 22.01 16.05 24.78 23.02

ReturnonCapitalEmployed(ROCE)measuresacompanysprofitabilityfromitsoveralloperationsbycalculatingthereturngeneratedonthetotalcapitalinvestedin
thebusiness(i.e.equity+debt).ReturnonEquity(ROE)orReturnonNetWorth(RONW)measurestheamountofprofitwhichthecompanygeneratesonmoney
investedbytheequityshareholders.Inshort,ROEdrawsattentiontothereturngeneratedbytheshareholdersontheirinvestmentinthebusiness.Togethertheseratios
canbeusedincomparingtheprofitabilityofthecompanywithothercompaniesinthesameindustry.

EfficiencyRatios(https://www.sanasecurities.com/returnequitycapitalemployedratio)

Valuation Analysis
Consolidated

Particulars FY2012 FY2013 FY2014 FY2015 FY2016

TotalIncomefromOperations(Rs.Cr.) 7,419.84 7,406.22 8,379.01 10,311.68 11,516.34

Growth(%) 13.38% (0.18%) 13.13% 23.07% 11.68%

PAT(Rs.Cr.) 132.33 198.35 186.88 320.22 364.45

Growth(%) 3.14% 49.89% (5.78%) 71.35% 11.02%

EarningsPerShareBasic(Rs.) 2.79 3.88 3.92 6.91 7.77

EarningPerShareDiluted(Rs.) 2.79 3.88 3.92 6.91 7.77

PricetoEarnings 14.70 8.36 30.03 31.28 41.53

PriceEarningsRatio(https://www.sanasecurities.com/priceearningratio)

Dividend History
TheCompanyhasmaintainedanaveragedividendyieldof2.21%overthelast5financialyears.

Liquidity and Credit Analysis

CurrentRatio

Highercurrentratioimplieshealthiershorttermliquiditycomfortlevel.Acurrentratiobelow1indicatesthatthecompanymaynotbeabletomeetitsobligationsinthe
shortrun.However,itisnotalwaysamatterofworryifthisratiotemporarilyfallsbelow1asmanytimescompaniessqueezeoutshorttermcashsourcestoachievea
capitalintensiveplanwithalongertermoutlook.TVSMotorsaveragecurrentratiooverthelast5financialyearshasbeen0.89timeswhichindicatesthattheCompany
iscomfortablyplacedtopayforitsshorttermobligations.

LongTermDebttoEquityRatio

Companiesoperatingwithhighlongtermdebttoequityontheirbalancesheetsarevulnerabletoeconomiccycles.Intimesofslowdownineconomy,companieswith
highlevelsofdebtfinditincreasinglydifficulttoservicetheinterestontheirborrowingsasprofitmarginsdecline.Webelievethatlongtermdebttoequityratiohigher
than0.60.8couldaffectthebusinessofacompanyanditsresultsofoperations.

TVSMotorsaveragelongtermdebttoequityratiooverthelast5financialyearshasbeen0.83timeswhichindicatesthattheCompanyoperateswithconsiderablelevel
ofdebt.

InterestCoverageratio

Interestcoverageratioindicatesthecomfortwithwhichthecompanymaybeabletoservicetheinterestexpense(i.e.financecharges)onitsoutstandingdebt.Higher
interestcoverageratioindicatesthatthecompanycaneasilymeettheinterestexpensepertainingtoitsdebtobligations.Inourview,interestcoverageratioofbelow1.5
 interestcoverageratioindicatesthatthecompanycaneasilymeettheinterestexpensepertainingtoitsdebtobligations.Inourview,interestcoverageratioofbelow1.5
shouldraisedoubtsaboutthecompanysabilitytomeettheexpensesonitsborrowings.Interestcoverageratiobelow1indicatesthatthecompanyisjustnotgenerating
enoughtoserviceitsdebtobligations.

(https://www.sanasecurities.com)
TVSMotorsaverageinterestcoverageratiooverthelast5financialyearshasbeen6.04timeswhichindicatesthattheCompanycanmeetitsdebtobligationswithout
anydifficulty.

Liquidity&CreditRatios(https://www.sanasecurities.com/idealcurrentratio)

Ownership pattern
Initslateststockexchangefilingdated31March2016,TVSMotorreportedapromoterholdingof57.40%.Largepromoterholdingindicatesconvictionandsincerityof
thepromoters.Webelievethatagreaterthan35%promoterholdingofferssafetytotheretailinvestors.

Atthesametime,institutionalholdingintheCompanystoodat29.07%(FII+DII).Largeinstitutionalholdingindicatestheconfidenceofseasonedinvestors.Atthe
sametime,itcanalsoleadtohighvolatilityinthestockpriceasinstitutionsbuyandselllargerstakesthanretailparticipants.

AbouttheAuthor

(http://www.blog.sanasecurities.com/wpcontent/uploads/2015/08/RajatSharmapicture.png)RajatSharmaisawellknownstockmarketanalyst
andcommentator.HehascoveredIndianmarketsforoveradecadeandisregardedforconsistentlyidentifyingearlystageinvestment
opportunities.Attorneybyqualification,Rajathasdoneextensiveworkforimprovingcorporategovernanceanddisclosurestandards.

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