TVS Motors Ltd (updated - 01 July 2010)
The shares of TVS Motors have been on a ride; they touched a yearly high and closed at Rs 119 on Wednesday. This comes on the back of May numbers, as volumes grew 31 per cent year-on-year to 156,980 during the month. Motorcycle sales, which saw a sequential dip in April, grew 2.9 per cent in May. A similar, if not better, performance is expected in the coming months.
The launch of the autoclutch model, Jive, buoyed volumes. With Jive and Wego expected to perform well, analysts reckon the company will grow more than the industry rate of 18 per cent in the coming months. TVS is likely to maintain monthly sales of more than 135,000 vehicles in the current financial year. The volume growth will enable the company to tide over the pressure on costs while the operating leverage will improve margins.
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However, the share price might have just reacted before the quarterly numbers. While there is optimism over volume growth, there are concerns if this will translate into earnings growth. Operating profit margins remained low at five-six per cent in May, with Bajaj Auto and Hero Honda (15 to 20 per cent) doing much better.
The company needs to manage raw material costs, which account for more than 70 per cent of expenses. With inflationary pressures on the rise, the costs may rise. The recent hike in petrol prices and a good monsoon will act as hedges -motorcycles offer best petrol consumption rates and a good monsoon may boost rural sales. The management has also mentioned restructuring of the electrical vehicle business, which could help curtail expenses. Exports may also get aboost as the company forays into the Philippines and Egypt. However, the base is low and analysts expect the company have a monthly run rate of around 20,000 vehicles, an overall 21 per cent growth.
Going ahead, the success of new launches and the ability to manage costs will be the real deciders.
source - business standard
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TVS Motors: Back on track (updated - 22 July 2010)
Investors in TVS are elated over the 1:1 bonus issue and a second interim dividend of 50 per cent. The company’s net earnings grew more than two times in the June 2010 quarter over the same period a year ago, while net sales rose 40 per cent. Volume growth, at around 32.7 per cent, was above the industry average of 20-25 per cent. This proved that the company’s strategies and launches were well received by the market.
TVS Motors got good traction in volumes due to new launches — Jive 110 cc clutch-less motorcycle, with monthly off-take at 8,000 units, and Wego, the 110cc ungeared scooter that records monthly sales of 9,000 units. Also, a five-six per cent growth in realisations helped. Analysts reckon the company will start operating on a higher base and, therefore, maintaining volumes will be critical.
With the Himachal Pradesh plant working at around 70 per cent capacity, TVS Motors can step up volumes if demand rises. Increased off-take from the plant will also stabilise operating profit margins, which are much lower (around 6.5 per cent) as compared to peers like Hero Honda and Bajaj Auto. The company is expected to launch variants of Apache 180cc and MAX 100cc with four stroke engines in the second half of FY11.
Recent spikes in raw material costs could be a concern, but the company has the headroom for better realisations. The share price shot up on bonus issue and dividend announcements, but the price of 19 times FY11 earnings is seen as fair. Visibility in volume off-take and positive news on Indonesian operations can be the next triggers for the stock.
source - business standard
