TVS Motors Company

Sector - Automobiles

Last Close Fair Value Market Cap Sector Country of Domicile

590.25 582.74 280.6 Bil Consumer India
Cyclical

TVS Motor Company –– a member of the TVS group is the largest company of the group in
terms of size and turnover. The TVS group has always been inspired by a century–long
mission and vision of its own destiny. It is not just a business but a way of doing business,
which sets TVS apart from others. TVS Motor Company is the third largest two–wheeler
manufacturer in India and one among the top ten in the world, with annual turnover of more
than $1 billion in 2008–2009. It is the flagship company of the $4 billion TVS Group. The
company has four plants located at Hosur and Mysore in south India, in Himachal Pradesh,
North India and one in Indonesia. The company has a production capacity of 2.5 million units
a year. TVS Motor's strength lies in design and development of new products –– the latest
launch of seven products on the same day seen as a first in automotive history. TVS delivers
total customer satisfaction by anticipating the customer's need and presenting quality vehicles
at the right time and at the right price. The customer and his ever changing need is its
continuous source of inspiration.

TVS has been at the forefront in bringing a revolution in the way personal commutation was
happening, way back in the 1980s. Beginning with launching a simple, easy–to–use moped
for the middle class in India in the 1980s to launching seven new bikes in a single day (first
time in the history of the automotive industry in the world), TVS has often taken the unbeaten
path to innovation.

Summary
 TVS Motors Company
Sector - Automobiles

Revenue rose by 8.35% to Rs. 3992.76 Cr in Q4FY18 when compared to the previous
quarter. Also, it increased by 40.37% when compared with Q4FY17. The Sales had been
increasing from Q1FY18 to Q2FY18. It displayed an erratic but decreasing trend from
Q1FY18 to Q4FY18.
EBITDA was Rs. 304.66 Cr for Q4FY18, a drop of 0.1% compared to Q3FY18.It increased
by 35.58% compared to Q4FY17. The EBITDA had been increasing from Q1FY18 to
Q2FY18, while it was decreasing in the period from Q3FY18 to Q4FY18. PAT for Q4FY18
was Rs. 165.61 Cr, a rise of 7.3% when compared to Q3FY18. When compared to Q4FY17,
PAT rose by 30.64%. The PAT had been increasing from Q1FY18 to Q2FY18. It displayed
an erratic but decreasing trend from Q1FY18 to Q4FY18.
The EBITDA Margin fell to 7.63% in Q4FY18, a fall of 65.0 bps compared to the last
quarter. It was due to the rise in raw material expenses as a proportion of sales. The EBITDA
Margin was 7.9% same quarter last year. PAT Margin decreased from 4.19% in Q3FY18 to
4.15% this quarter. It fell due to the drop in EBITDA Margin, interest and depreciation.

 TVS motors (TVSL) 4QFY18 results, were below our and consensus estimates on
operating level. EBITDA margin were lower due to higher RM cost, minimum wage
increase, increase in import duty, product launch in 4QFY18 and Auto Expo
expenses. Increase in RM cost and higher import duty on components led to
increase in cost by 1.2%. Tamil Nadu and Karnataka state govt. increased the
minimum wage which led to increase in cost by ~0.3%. TVS recently launched
(Ntorq 125, Apache 150 and RR310) and Auto Expo expenses led to increase in
other expenses by 0.5%.
 Miss on margins: Revenue grew by +40% YoY / +8% QoQ to Rs39.9bn (Consensus Est:
Rs39.8bn), led by +32% YoY / +8% QoQ growth in volumes and +7% YoY / 1% QoQ in
realization. During the quarter company has taken a price hike of ~0.4% in Jan18 which was
passed on to dealers for dealer margin improvement whereas company has taken a price hike
in April-May 17 by ~0.5%. Gross margin declined -110bps QoQ to 26.2%. EBITDA margin
for the quarter improved +130 bps YoY / -80 bps QoQ to 7.0% (Consensus Est: 8.6%).
Depreciation increased due to recently launched products whereas interest cost was
 TVS Motors Company
Sector - Automobiles

high due to working capital borrowing. Overall, PAT grew +31% YoY to Rs1.6bn (
Consensus Est: Rs1.9bn), below consensus estimates due to weaker operating performance.
 Outlook and valuation: We believe TVS would continue to gain market share in
motorcycle/scooter segment on account of recent launches and network expansion.
However we maintain our cautious view on margins and expect higher RM prices
could impact margins in coming quarter. We expect revenue and earnings to grow
~15% and ~26% CAGR over FY18-FY20E with RoCE of ~29%. We have arrived FY20E
EPS at Rs22.3, factoring in revenue growth of ~15% and EBITDA margin of ~8.4. We
maintain our SELL rating on stock due to high valuations and revised our TP of Rs560
(earlier Rs570), based on 25x FY20E EPS.
Concall Key takeaways

 Current capacity for 2W and 3W is 4.8mn and 180k respectively.

 CAPEX plan for FY19 would be Rs7bn; which will include new product launches,
technology up gradation of BS VI etc.
 Depreciation increased due to recently launched products whereas interest cost was high
due to working capital borrowing.
 Tax rate is expected to increase in FY19 due to deduction in R&D benefits, expiry of
excise duty benefit of Himachal Pradesh (HP) plant etc.
 Approximately 15% components are imported in RM cost.
 Export revenue for the 4QFY18 and FY18 was Rs9.5bn and Rs31bn respectively.
 Currently have 1,150 dealers (added 250 dealers in FY18) and 3,000 sub dealers in FY18
 Expect 2W industry to grow to ~8-10% in FY19.
 TVS credit service – PAT for FY18 was Rs1.14bn vs Rs0.87bn in FY17. Currently Net
worth is ~Rs8.9bn whereas book size is Rs61bn vs Rs50bn in FY17.

 Demand: The management indicated that TVS models have registered double-digit
volume growth in motorcycle/scooter segments. With normal monsoon expectations
in the current year and a strong product portfolio, the company is hopeful to
outperform industry growth. Its Apache 310 model is currently clocking sales of
1,000 units/month and has a waiting period of upto three months. While the two-
wheeler industry growth is expected to be in the range of 8-10%, the management is
confident of growing at a faster pace.
 Indonesia update: The company has seen a rising demand trend and is confident of
achieving PAT break-even by the end of FY19. Its PBT loss in FY18 stood at
Rs3.7mn.
 New launches: The company introduced two new motorcycle models, Apache RTR
160 4V and Apache RTR 160 4V. Demand for the same has been good and the
products have been well accepted in the market. Currently manufacturing ~1,000
units of RR310 on monthly basis.
 Exports: Export sales stood at Rs9,500mn in 4QFY18 and Rs31bn in FY18. The
company expects to continue its growth momentum because of good acceptance of its
products.
 Price revision: TVS Motor Company undertook price hike in January 2018 by 0.4% in
order to support dealer margins post Goods and Services Tax or GST implementation
and the same did not accrue to the company. It also undertook another 0.5% price
 TVS Motors Company
Sector - Automobiles

hike in April 2018. With raw material cost pressure witnessed in 1HFY19 as well, the
company will review product prices going forward.
 Guidance: The management sees headwinds in the coming year with regards to
commodity cost pressure. However, an improved product mix, implementation of
cost-reduction initiatives, localisation, etc, will help it partially offset the cost pressure
and result in improving EBITDA-level performance going forward.
Capex: The company has given FY19 capex guidance of Rs7,000mn to be spent on
new products, enhancing production capacity, supplementation of new technology
and for on-going work for BS-VI upgradation. It currently has a production capacity
of close to 4.8mn two-wheelers and 180,000 three
wheelers per year.
 Other expenses: Other expenses include higher sales and marketing expenses (which
added 0.5% tocosts) as the company continued its brand promotion. This also
coincided with the launch of Apache RTR 160 4V and NTorq models, and also Auto
Expo expenses, which further added to the costs.
Revision of minimum wage in South India by ~30% along with higher depreciation
(on account of capitalisation) and higher interest expenses (because of working capital
requirement) contributed to increased overall costs.
 Volume Growth and Market Share Gain: The Management attributed the
Company’s volume growth to good response to new products in domestic market.
Management aims to increase its market shares in domestic 2W industry in FY19-
FY20 with success of new Apache, Jupiter and NTROQ in 2W segment. Management
targets outperformance amid success of new launches as it has established few strong
brands in domestic two wheeler industry over last two years. Management also cited
similar growth for Mopeds. Company targets to outperform industry growth largely
on account of expected new launches, while guided for 8-10% growth for domestic
two wheeler industry in FY19.
 BMW Motorrad tie-up to give additional revenue stream, technological edge: We
believe this tie-up would give TVSL an additional revenue stream in the form
of contract manufacturing for BMW Motorrad. Moreover, it would give an
aspiration value to TVSL products, particularly premium ones. TVSL has invested
~EUR20m, with supplies of the first product starting from Dec-16. We have
incorporated supplies to BMW alliance in our estimates.
 NBFC arm becoming subsidiary to boost consolidated performance: Services, ~85%
subsidiary, is fast growing NBFC company with presence in
financing of 2Ws, used cars, tractors etc. We value this NBFC company at
~INR58/share.

Risk to the view –

 Any major economic slowdown or abnormal monsoon impacting consumption of the
two wheelers.
 Success of new launches by competition.
 Adverse exchange rate impacting company’s import cost.
 Sharp cost inflation of commodity results in limited ability to pass on to end
consumers impacting profitability of the auto makers.
 TVS Motors Company
Sector - Automobiles

Product mix

YoY QoQ
MIX) 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18
(bps) (bps)
Motorcycles 34.5 31.8 41.0 38.5 38.0 353 (52)
Scooters 30.8 33.1 32.0 34.6 30.8 3 (382)
Mopeds 32.5 32.8 24.6 24.2 28.0 (458) 374
3Ws 2.2 2.3 2.4 2.7 3.3 103 60
Exports 13.7 16.4 15.6 15.6 17.0 327 145

Profit & Loss Account (Rs mn)

Year-end:
FY 17 FY 18 FY 19E FY 20E
March
Net sales 121,353 151,297 174,227 199,516
Growth (%) 9.3 24.7 15.2 14.5
Operating
(112,782) (140,005) (160,161) (182,740)
expenses
EBITDA 8,571 11,292 14,066 16,776
Growth (%) 5.8 31.8 24.6 19.3
Depreciation (2,878) (3,387) (3,745) (4,213)
EBIT 5,693 7,905 10,320 12,562
Interest paid (440) (566) (287) (197)
Other income 1,734 1,448 1,856 1,926
Pre-tax profit 6,987 8,786 11,889 14,292
Tax (1,406) (2,161) (3,091) (3,716)
Effective tax
20.1 24.6 26.0 26.0
rate (%)
Net profit 5,581 6,626 8,798 10,576
Exceptional
- - - -
items
Adjusted net
5,581 6,626 8,798 10,576
profit
Growth (%) 14.1 18.7 32.8 20.2
Shares o/s (mn
475 475 475 475
nos)
 TVS Motors Company
Sector - Automobiles

Cash Flow Statement (Rs mn)

Balance Sheet (Rs mn)

 TVS Motors Company
Sector - Automobiles

Financial Ratios
 TVS Motors Company
Sector - Automobiles

Valuation

Shareholding Pattern (%)

Promoters 57.4

FII 20.2

DII 10.6

Public 11.8

Key Stock Data

Bloomberg / Reuters TVSL IN/TVSM.BO
Sector Automobile
Shares o/s (mn) 475
Market cap. (Rs mn) 290,302
Market cap. (US$ mn) 4,275
3-m daily average value (Rs mn) 621
52-week high / low Rs795 / 518
Sensex / Nifty 35,388 / 10,741
 TVS Motors Company
Sector - Automobiles

COMPARATIVE VALUATION

EPS CAGR
P/E (x) EV/EBITDA (x) RoE (%) Div Yield (%) (%)

FY19E FY20E FY19E FY20E FY19E FY20E FY19E FY20E FY18-20E

Auto OEM's

TVS Motor 30.9 21.2 18.4 13.2 29 33.2 0.7 0.8 43.8

Hero MotoCorp 17.8 15.6 10.7 9.4 32.1 32.4 2.9 3.2 11.2

Bajaj Auto 16.7 14.2 12.1 9.9 24.6 26 2.7 3 15.5

M&M 18.2 16.7 14.4 12.7 14.8 15.2 1.2 1.2 13.5

Maruti Suzuki 24.9 19.6 15.2 12.2 21.4 23.1 1.1 1.4 29.1

Tata Motors 5.4 4.7 2.5 2 24.3 22.1 0.1 0.1 62.8

Ashok Leyland 21.1 16.6 11 8.5 27.6 29.2 1.5 1.6 30.1

Eicher Motors 29.1 22.7 24.4 19.7 35 33.8 0.6 0.7 29.8

Auto Ancillaries

Bharat Forge 27.6 21 15.9 12.7 23.3 25.4 0.7 0.9 31.9

Exide Industries 25.8 20.5 14.3 11.6 14.1 15.8 1 1.3 23.5

Amara Raja
Batteries 25.3 21.5 13 10.9 18 18.3 0.6 0.7 19

BOSCH 31.2 26.2 18.3 15.3 17.5 18.7 1.1 1.3 23

Endurance Tech 30.6 23.1 14.6 11.4 22.6 25.2 0.6 1.1 32.5

Motherson Sumi 26.6 19.1 9.7 6.9 25.4 29.3 0.9 1.4 47

Mahindra CIE 17.3 14.4 9 7.2 13.1 13.8 0 0 31.3