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  • Stock recommendation: TVS Motor — Sell — Target price Rs 405

    Publish date: August 8, 2018

    Results update: Margins stuck in a range

    TVS Motor, the fourth-largest two-wheeler maker in India, delivered disappointing first quarter results due to loss of market share in the motorcycle segment, increase in raw material prices and marketing costs.

    Although the company’s net profit and EBITDA were in the positive, the numbers were well below our estimate.

    Key Highlights

    • The company’s net profit increased by 13% (YoY), but was 11% down on our estimates. Higher tax rate and lower income from other businesses meant the company missed the mark this quarter.
    • The company’s EBITDA, a metric to gauge internal cash flow, improved by 45% (YoY) but that too was 2% lower than estimates. We feel it is difficult for the company to have a 10% EBITDA growth due to rising commodity prices, high ad spends and fierce competition.
    • The two-wheeler maker’s domestic sales volume grew by 15.7% (YoY), mainly due to last year’s low base. The company’s volume growth in the domestic market was also lower when compared to its direct competitors. However, the management reckons the volume data to grow by double digits due to strong performance in the scooter segment.
    • The company remained in control of its capex. Going forward, the capex may be utilized for product development and upgrading products to meet new emission norms.

    Valuation and Outlook