Signs of recovery in 2Ws; Share of Scooters rising

Transcription

1 BSE Sensex S&P CNX 21,810 6, March 2014 Update Sector: Automobiles TVS Motor CMP: INR87 TP: INR120 Buy Stock Info Bloomberg TVSL IN Equity Shares (m) Week Range (INR) 90/28 1, 6, 12 Rel. Per (%) -2/159/123 M.Cap. (INR b) 41.0 M.Cap. (USD b) 0.7 Financial Snapshot (INR Million) Y/E March 2014E 2015E 2016E Net Sales 80,007 96,330110,661 EBITDA 4,720 6,117 7,436 Adj PAT 2,861 3,765 4,741 EPS (INR) Growth (%) BV/Sh (INR) RoE (%) RoCE (%) P/E (x) P/BV (x) Shareholding pattern (%) As on Dec-13 Sep-13 Dec-12 Promoter Dom. Inst Foreign Others Stock Performance (1-year) Signs of recovery in 2Ws; Share of Scooters rising TVSL gaining share in Scooters; South recovery augurs well Our analysis of the state-wise and product segment-wise two-wheeler (2W) sales for the last four years up to 3QFY14 indicates initial signs of demand recovery. October-February sales grew 9.1% against 3.5%/3.2% in 1HFY14/FY13. The weak performing South region too has stabilized, registering 2.9% growth in 3QFY14 against 10.3% decline in 1HFY14. Scooter volumes grew 18%, outpacing Motorcycle volume growth across regions. The share of Scooters has increased from 21.3% in FY13 to 23.7% in 9MFY14. Post the launch of Jupiter in September 2013, TVSL s market share in Scooters has increased. In non-south markets, growth in Moped volumes has remained strong at 18%. In Uttar Pradesh, the largest non-south market for Mopeds, volumes grew 20%. TVSL is the only company currently operating in the Mopeds segment in India. Recovery in South markets augurs well for TVSL, which derives 56% of its volumes from this region. Over the next months, TVSL plans to launch multiple products across segments to reinforce its product portfolio. We expect EPS to grow at a CAGR of 34% over FY Maintain Buy, with a target price of INR120 (12x FY16E EPS). Initial signs of recovery in 2Ws; North and East driving growth Initial signs of demand recovery are evident in the domestic two-wheeler (2W) industry. October-February sales have grown 9.1% v/s 3.5%/3.2% in 1HFY14/FY13. The North (13.2% growth) and East (17.1% growth) have been the key growth drivers during the period. The South has been the weakest performer, with volume decline of 6.5%, largely due to 19.4% decline in the largest market, Tamil Nadu. However, signs of recovery are visible in the South as well, with marginal growth of 2.9% in 3QFY14 (v/s 10.3% decline in 1HFY14) Scooters outperform across regions; Jupiter helps TVSL gain share Scooter volumes grew 18%, outpacing Motorcycle growth across regions. The share of Scooters has risen from 21.3% in FY13 to 23.7% in 9MFY14. Post the launch of Jupiter in September 2013 in the non-south markets, TVSL has witnessed healthy improvement in its market share in Scooters. Jinesh Gandhi (Jinesh@MotilalOswal.com); Chirag Jain (Chirag.Jain@MotilalOswal.com); Mopeds register 18% growth in non-south markets Moped volumes declined 10.6% in 9MFY14 due to 31% decline in the largest market, Tamil Nadu, which contributes 47% of volumes. In non-south markets, growth in Moped volumes has remained strong at 18%. In Uttar Pradesh, the largest non-south market for Mopeds, volumes grew 20%. Investors are advised to refer through disclosures made at the end of the Research Report.

2 TVSL is the only company currently operating in the Mopeds. TVSL gaining share in Scooters, South recovery augurs well; Buy Post Jupiter launch, TVSL s market share in Scooters has increased in non- South markets. Launch in the South market in 4QFY14 would further boost TVSL s share. Recovery in South markets augurs well for TVSL, given its high dependence on this region (South India, which contributed 31% of industry volumes in FY13, accounted for 56% of TVSL s volumes). Over the next months, TVSL plans to launch multiple products across segments to reinforce and fill gaps in its product portfolio. We expect EPS to grow at a CAGR of 34% and FCF to grow at a CAGR of 25% over FY14-16, with RoE improving from 19.9% to 25.5%. Sustained strength of the Scooter industry and TVSL s market share gains, coupled with initial signs of recovery in the South, increase our confidence in TVSL s ability to deliver strong volume-led earnings growth. We now value TVSL at 12x (v/s 10x earlier) FY16E EPS of INR10. Maintain Buy, with a target price of INR March

3 Initial signs of recovery in 2Ws North and East driving growth, South stabilizing Initial signs of demand recovery are evident in the domestic two-wheeler (2W) industry. October-February sales have grown 9.1% v/s 3.5%/3.2% in 1HFY14/FY13. The North (13.2% growth) and East (17.1% growth) have been the key growth drivers during the period. The South has been the weakest performer, with volume decline of 6.5%, largely due to 19.4% decline in the largest market, Tamil Nadu. However, signs of recovery are visible in the South as well, with marginal growth of 2.9% in 3QFY14 (v/s 10.3% decline in 1HFY14). North and East driving two-wheeler industry growth Two-wheeler (2W) industry growth has improved from 3.2% in FY13 to 5.8% in 9MFY14, driven by strong growth in the North and the East. 2W volumes grew 13% in the North and 17% in the East during 9MFY14. Growth in the West also improved from 1.1% in FY13 to 7.6% in 9MFY14. The South has been the weakest performer, with volume decline of 6.5%, largely due to 19.4% decline in the largest market, Tamil Nadu. Domestic 2W industry recovering over past two quarters Domestic YoY (%) North and East registers growth, while South declines (%) FY12 FY13 9MFY (1.9) FY12 FY13 1QFY14 2QFY14 3QFY14 Jan-14 Feb-14 Source: Company, MOSL (1.2) (6.5) North East West South Total Tamil Nadu drags South performance, but recovery signs visible Consumer sentiment in the South, particularly Tamil Nadu, has been weak over the last couple of years due to drought and major power shortage, which impacted industrial activity. However, with improved power availability and relatively better monsoon in FY14, there are signs of recovery in Tamil Nadu 2W volumes declined 9.3% in 3Q after 30% decline in 2Q and 18% decline in 1Q. In Karnataka and Andhra Pradesh, 2W volumes grew 21% and 12.9%, respectively in 3QFY March

4 Within the South, Tamil Nadu has been the worst hit (%) Signs of recovery visible in 3QFY14 in the South, as well (%) (1.3) 1.6 Andhra Pradesh FY13 9MFY (8.5) (0.3) (6.5) (19.4) Karnataka Kerala Tamil Nadu South Zone Andhra Pradesh Karnataka Kerala Tamil Nadu South Zone (5.4) (9.9) (10.8) (18.0) (10.9) (9.3) (30.0) 1QFY14 2QFY14 3QFY14 18 March

5 Scooters outperform; Jupiter helps TVSL gain share Mopeds register healthy growth in non-south markets Motorcycle volumes grew 3.5% in 9MFY14, driven by 9.6% growth in the North and 13.1% growth in the East, though the South saw 9.7% decline. Scooter volumes grew 18%, outpacing Motorcycle volume growth across regions. The share of Scooters has increased from 21.3% in FY13 to 23.7% in 9MFY14. Post the launch of Jupiter in September 2013 in the non-south markets, TVSL has witnessed healthy improvement in its market share in Scooters. Moped volumes declined 10.6% in 9MFY14 due to 31% decline in the largest market, Tamil Nadu, which contributes 47% of volumes. However, in non-south markets, growth has remained strong at 18%. In Uttar Pradesh, the largest non-south market for Mopeds, volumes grew 20%. Motorcycle grew 3.5% in 9MFY14, led by North and East (%) South also witnessed positive growth in 3QFY14 (%) FY12 FY13 9MFY14 1QFY14 2QFY14 3QFY (0.3) (3.9) (0.5) (1.8) (9.7) North East West South Total (2.0) (13.5) (17.8) (2.9) North East West South Total Scooters outperform across regions; share at 23.7% v/s 12% in FY07 Scooter volumes grew 18%, outpacing Motorcycle volume growth across regions. The share of Scooters has increased from 21.3% in FY13 (12% in FY07) to 23.7% in 9MFY14. Changing customer preferences are driving value migration from motorcycles to scooters in India. Scooters outperform motorcycles across regions (9MFY14, %) Scooters Motorcycle Share of scooters rises further (%) FY11 FY12 FY13 9MFY North East West South (9.7) North East West South 18 March

6 UP is the largest non-south market for Mopeds, with 9% share. In 9MFY14, Moped volumes grew 20% in UP. Mopeds register 18% growth in non-south market Moped volumes declined 10.6% in 9MFY14 due to 31% decline in the largest market, Tamil Nadu, which contributes 47% of volumes. In non-south markets, growth in Moped volumes has remained strong at 18%. In Uttar Pradesh, the largest non-south market for Mopeds, volumes grew 20%. Mopeds register growth across non-south markets (%) Overall volumes down due to high South exposure FY11 FY12 FY13 9MFY14 (YoY) Moped growth 9MFY14 (%) 8 18 (2.3) (10.6) (21.7) North East West South PAN India (31) Tamil Nadu Excl. Tamil Nadu Excl. South 18 March

7 TVSL gaining share in Scooters South recovery augurs well; Buy Post the launch of its 110cc Scooter, Jupiter, TVSL s market share in Scooters has increased in non-south markets. Launch in the South market in 4QFY14 would further boost its share. Recovery in South markets augurs well for TVSL, given its high dependence on this region (South India, which contributed 31% of industry volumes in FY13, accounted for 56% of TVSL s volumes). TVSL is well positioned to benefit from the scooterization wave in India. Over the next months, it plans to launch multiple products across segments to reinforce and fill gaps in its product portfolio. We expect EPS to grow at a CAGR of 34% and FCF to grow at a CAGR of 25% over FY14-16, with RoE improving from 19.9% to 25.5%. Maintain Buy. Jupiter helps TVSL gain share; new Scooty to further strengthen position With Jupiter launch, TVSL has the complete range of scooters, with products in every sub-segment (women, unisex, men). Demand for Jupiter remains strong, with a waiting period across major markets. Post the launch of its 110cc Scooter, Jupiter, TVSL s market share in Scooters has increased in non-south markets. Launch in the South market in 4QFY14 would further boost its share. Upcoming launch of Scooty Zest in April 2014 (110cc engine, currently offering 90cc variant) will further strengthen TVSL s positioning in the women's Scooter space. We expect TVSL s Scooter volumes to register a CAGR of 19.5% over FY14-16, driven by product actions, capacity ramp-up and robust Scooter industry growth. Post Jupiter launch, TVSL gains share in non-south market (%) FY11 FY12 FY13 1HFY14 3QFY TVSL gains share in Motorcycles, driven by gains in North (%) FY11 FY12 FY13 9MFY North East West South North East West South Total Recovery signs visible in South; TVSL could benefit disproportionately Performance of the 2W industry has been the weakest in the South market, which saw 6.5% volume decline in 9MFY14, largely due to 19.4% decline in Tamil Nadu. However, signs of recovery are visible in the South as well, with marginal growth of 2.9% in 3QFY14 (v/s decline of 10.3% in 1HFY14). 18 March

8 South India, which contributed 31% of industry volumes in FY13, accounted for 56% of TVSL s volumes. New launches, recovery in the South and robust 19.5% CAGR in Scooter volumes should drive 13.3% CAGR in TVSL s overall volumes over FY South recovery could benefit TVSL disproportionately FY13 volume share (%) North East West South TVS Motor Industry particularly in Mopeds and Scooters TVS South FY13 vol. exposure (%) Mopeds Motorcycles Scooters Total Reinforcing strong product pipeline, filling gaps in portfolio Limited product actions were the key reason for TVSL s significant market share loss from 22.3% in FY03 to 12% in 1HFY14. Unlike the past, TVSL has a strong product pipeline and plans to launch a product every quarter, including two new executive motorcycles and a diesel three-wheeler. Unlike the past, TVSL now has a robust product pipeline Timeline Product Category Comments 1QFY15 Scooty Zest Scooter (110cc engine) Same 110cc engine as in Wego, Jupiter 1QFY15 Star City Motorcycle (110cc engine) Product upgrade (all-new platform) 2QFY15 Diesel 3W Three-wheeler Diesel segment constitute 65% of three-wheeler 2QFY15 Victor Motorcycle (110cc engine) To share platform with Star City upgrade model 2QFY15 4-stroke Moped Moped (100cc) To improve fuel efficiency, currently 2-stroke 70cc available Success of new launches could yield disproportionate gains Given its wide distribution network (second to Hero MotoCorp) and low base, success of any one or two launches could drive disproportionate gains in market share and volumes for TVSL. Wide network could help TVSL achieve disproportionate gains from successful launches No. of dealers Hero Moto TVS Motor Bajaj Auto HMSI Source: Company, MOSL 18 March

9 Sale of non-core investments + healthy cash from operations = net cash Healthy cash from operations (FCF CAGR of 25% over FY14-16) coupled with sale of non-core investments should transform TVSL into a net cash company by FY16. TVSL had net debt of INR6.2b in FY13. It recently sold its majority stake in its Energy venture, reducing consolidated debt by INR2.6b. Expect FCF CAGR of 25% over FY14-16 CFO (INR m) Capex (INR m) FCF (INR m) 6,619 6,866 5,433 4,440 5,054 5,309 2,672 3,303 3,474 2, ,565-1,557-1,768-1,959 FY12 FY13 FY14E FY15E FY16E Source: Company, MOSL High FCF to transform TVSL into net cash company by FY16 Net debt (INR m) Interest cost (INR m) ,717 8,181 6, , FY12 FY13 FY14E FY15E FY16E Source: Company, MOSL Maintain Buy with a target price of INR120 TVSL is well positioned to benefit from the scooterization wave in India. Over the next months, it plans to launch multiple products across segments to reinforce and fill gaps in its product portfolio. We expect EPS to grow at a CAGR of 34% and FCF to grow at a CAGR of 25% over FY14-16, with RoE improving from 19.9% to 25.5%. We expect TVSL to be a net cash company by FY16, driven by strong FCF. Sustained strength of the Scooter industry and TVSL s market share gains, coupled with initial signs of recovery in the South, increase our confidence in TVSL s ability to deliver strong volume-led earnings growth. We now value TVSL at 12x (v/s 10x earlier) FY16E EPS of INR10. Maintain Buy, with a target price of INR March

10 Financials and valuation TVS Motor Income statement (INR Million) Y/E March E 2015E 2016E Net Sales 62,880 71,415 70,650 80,007 96, ,661 Change (%) EBITDA 3,954 4,694 4,090 4,720 6,117 7,436 EBITDA Margin (%) Depreciation 1,073 1,175 1,304 1,291 1,388 1,470 EBIT 2,882 3,518 2,786 3,429 4,729 5,966 Interest Other Income Extraordinary items PBT 2,481 3,165 1,636 3,815 5,020 6,321 Tax ,255 1,580 Tax Rate (%) Reported PAT 1,946 2,491 1,160 2,861 3,765 4,741 Adjusted PAT 1,972 2,491 1,810 2,634 3,765 4,741 Change (%) Balance sheet (INR Million) Y/E March E 2015E 2016E Share Capital Reserves 9,519 11,221 11,772 13,799 16,453 19,804 Net Worth 9,994 11,696 12,247 14,274 16,928 20,279 Debt 7,678 8,311 6,345 4,345 4,320 3,820 Deferred Tax Total Capital Employed 18,629 20,982 19,523 19,550 22,179 25,030 Gross Fixed Assets 19,723 21,545 22,479 24,479 25,979 27,479 Less: Acc Depreciation 10,347 11,289 12,365 13,656 15,043 16,514 Net Fixed Assets 9,376 10,256 10,115 10,823 10,936 10,966 Capital WIP Investments 6,611 9,309 8,688 8,953 9,953 10,953 Current Assets 12,014 11,055 12,029 13,092 17,446 21,817 Inventory 5,279 5,846 5,097 5,455 6,380 7,329 Debtors 2,706 2,080 3,005 3,069 3,431 4,245 Cash & Bank ,498 5,899 Loans & Adv, Others 3,969 2,998 3,752 3,940 4,137 4,344 Curr Liabs & Provns 9,946 10,163 11,670 13,638 16,541 19,148 Curr. Liabilities 9,453 9,585 11,136 12,429 14,965 17,191 Provisions ,209 1,576 1,957 Net Current Assets 2, ,669 Total Assets 18,629 20,982 19,523 19,550 22,179 25,030 E: MOSL Estimates 18 March

11 Financials and valuation TVS Motor Ratios Y/E March E 2015E 2016E Basic (INR) EPS Cash EPS Book Value DPS Payout (incl. Div. Tax.) Valuation (x) P/E Cash P/E Price / Book Value EV/Sales EV/EBITDA Dividend Yield (%) Profitability Ratios (%) RoE RoCE Turnover Ratios Asset Turnover (x) Cash flow statement (INR Million) Y/E March E 2015E 2016E OP/(Loss) before Tax 2,481 3,165 1,628 3,512 5,020 6,321 Depreciation ,076 1,291 1,388 1,470 Others Interest Direct Taxes Paid ,255 1,580 (Inc)/Dec in Wkg Cap ,359 1, CF from Op. Activity 2,341 4,409 4,181 5,125 6,281 6,493 (Inc)/Dec in FA & CWIP -1,074-1, ,959-1,565-1,557 (Pur)/Sale of Invt 830-2, ,000-1,000 Others CF from Inv. Activity -21-3, ,916-2,227-2,185 (Inc)/Dec in Debt -3, , Interest Paid Dividend Paid ,112-1,390 Others 1,812 2, CF from Fin. Activity -3, ,755-1,184-1,907 Inc/Dec of Cash , ,870 2,402 Add: Beginning Balance 1, , ,498 Closing Balance ,498 5,899 E: MOSL Estimates 18 March

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