HOLD

Result Update TVS Motors Target Price

29thJan 2021 Auto 500

Good Quarter led by exports and better realizations; Maintain Hold (CMP as of Jan 28, 2021)

TVS Motors Ltd (TVSL) reported a good set of results. The top line came in at Rs 5,391 crs in CMP (Rs) 529
Q3FY21 (a growth of 31% YoY) v/s our estimate of Rs 5,317 crs. The revenue growth was led Upside /Downside (%) -5.5%
by (1) 20% YoY increase in volumes and an 8.5% increase in ASPs. TVSL reported EBITDA High/Low (Rs) 555/240
margin of 9.5% (68bps YoY expansion) which was higher than our estimate of 9.4%. Reported Market cap (Cr) 25,116
EBITDA came in at Rs. 511 crs, a growth of ~41%YoY. The beat on EBITDA was driven by
Avg. daily vol. (6m) Shrs. 6,27,611
higher sales volume, better margin realization from exports and cost cutting initiatives
undertaken by the company. No. of shares (Cr) 47
Company reported Profit after Tax of Rs 266 crs (v/s our estimate of Rs 247 crs) a growth of
44% YoY as compared to Rs 184 crs in Q3FY20 due to outperformance at EBIDTA level. We Shareholding (%)
have revised our estimates upwards on the back of better cost management measures Jun-20 Sep-20 Dec-20
undertaken by the company and improving outlook for co’s exports and premium
Promoter 57.4 57.4 57.4
portfolio going forward. We continue to maintain our HOLD rating with a revised target
FIIs 10.5 10.6 11.2
price of Rs 500 from Rs 445 earlier valuing the company at 22x FY23EPS.
MFs / UTI 16.3 13.9 12.1
Key concall takeaways Banks / FIs 0.2 0.2 0.1

 Domestic Demand: The management noted that domestic 2W retail demand has now Others 15.6 17.9 19.3

recovered to pre-Covid levels. As more urban markets are opening up, scooter demand has
Financial & Valuations
started to improve and should drive volumes going ahead. The sentiment in rural markets
also remains positive led by good monsoon, higher reservoir levels, strong rural demand and Y/E Mar (Rs. Crs) 2021E 2022E 2023E
government initiatives for revival. As a result, management is cautiously optimistic on volume Net Sales 16,776 20,543 23,964
growth going ahead. Inventory levels at dealers are at around 4 weeks. EBITDA 1,356 1,760 2,133
 Exports remain robust: Export two-wheeler volumes grew by 31% YoY in Q3FY21 led by Net Profit 557 820 1,079
strong demand recovery. TVSL’s export revenue stood at Rs 1,303crs in Q3FY21 led by EPS (Rs.) 11.7 17.3 22.7
strong volume growth and premiumization in export markets. Export performance was PER (x) 45.1 30.6 23.3
impacted to a certain extent by scarcity in availabilty of containers, which has continued even EV/EBITDA (x) 19.5 15.0 12.1
in January. However, despite this, management expects exports to remain buoyant going P/BV (x) 6.3 5.5 4.6
ahead. USD/INR realization rate was Rs 74.2. ROE (%) 14.3 18.7 21.0
 Focus on cost management continues: Company continued to benefit from the cost-
cutting initiatives it has taken to reduce material cost and shift towards digital channels, Change in Estimates (%)
which has helped reduce its marketing spends. Management expects this to sustain going Y/E Mar FY21E FY22E FY23E
ahead. Employee costs were up 26% QoQ as management reinstated salary cuts taken in Sales 6.3 7.0 7.1
Q1 and also went ahead with regular increments. Higher production also necessitated some EBITDA 12.3 4.7 4.3
overtime. The reduction in marketing expenses is sustainable due to increased level of
PAT 28.6 12.6 12.3
digital marketing. Though some expenses would come back post COVID, management is
confident that balance cost savings are sustainable.
Axis vs Consensus
Valuation & Outlook EPS Estimates 2021E 2022E 2023E
TVSL is witnessing strong sequential recovery across its portfolio in domestic as well as the Axis 11.7 17.3 22.7
international markets. The share of premium products in the portfolio is increasing which is
helping the company to improve its margins. Themedium-term export volume outlook is strong Consensus 8.9 16.5 21.5
for TVS given low penetration in target markets and scope to gain market share.We expect Mean Consensus TP (12M) 450
company’s volumes to decline by ~6% in FY21E followed by strong recovery of ~20% and ~14%
in FY22E/FY23E respectively. We have revised our estimates upwards on the back of better cost
management measures undertaken by the company and improving outlook for co’s exports and Relative performance
premium portfolio going forward.We continue to maintain our HOLD rating with a revised
140
target price of Rs 500 from Rs 445 earlier valuing the company at 22x FY23EPS.
120
Key Financials (Standalone)
100
(Rs. Cr) FY20A FY21E FY22E FY23E 80

Net Sales 16,423 16,776 20,543 23,964 60

EBITDA 1,346 1,356 1,760 2,133 40

Jan-20 Apr-20 Jul-20 Oct-20 Jan-21
Net Profit 592 557 820 1,079
TVS Motors BSE Sensex
EPS (Rs.) 13.0 11.7 17.3 22.7
Source: Capitaline, Axis Securities
ROE (%) 17.2 14.3 18.7 21.0
ROCE (%) 12.7 11.1 14.9 17.8
PER (x) 22.9 45.1 30.6 23.3
P/BV (x) 3.9 6.3 5.5 4.6
11.7 19.5 15.0 12.1
DarshanGangar
EV/EBITDA (x)
Research Associate
Debt/ Equity (x) 0.6 0.4 0.3 0.2
Source: Company, Axis Research Email: darshan.gangar@axissecurities.in

1
Q3FY21 Financial Highlights (Standalone)

Axis Sec Axis Sec QoQ growth YoY growth

(Rscrs) Q3FY21 Q2FY21 Q3FY20
Estimates Var (%) (%) (%)

Net Sales 5,391 5,317 1.4 4,605 17.1 4,125 30.7

Less:

Net Raw Material consumed 4,103 4,041 1.5 3,525 16.4 2,979 37.7
Other Manufacturing & Sales Exp. 508 532 (4.4) 436 16.4 550 (7.7)
Personnel Cost 269 245 9.9 214 25.6 233 15.4
Total Expenditure 4,880 4,817 1.3 4,175 16.9 3,762 29.7
EBIDTA 511 500 2.3 430 18.8 363 40.7
Less: Depreciation 133 150 (11.3) 133 (0.1) 121 9.6
EBIT 378 350 8.2 297 27.3 242 56.3
Less: Interest 29 29 (0.4) 41 (28.6) 21 37.5
Add: Other income 12 9 30.9 11 11.4 1 1,287.6
Profit Before Extra-ordinary items and Tax 361 330 9.6 267 35.2 222 63.0
Less: Extraordinary Expense/(Income) 0 0 NA 0 NA 76 NA
Profit Before Tax 361 330 9.6 267 35.2 146 148.1
Less: Total Tax 96 83 15.5 71 34.7 25 288.8
Profit After Tax 266 247 7.6 196 35.3 121 119.4
Adj. PAT 266 247 7.6 196 35.3 184 44.2
Shares Outstanding (crs) 48 48 48 48
Reported EPS (Rs.) 5.6 5.2 7.6 4.1 35.3 2.5 119.4
Adj. EPS (Rs.) 5.6 5.2 7.6 4.1 35.3 3.9 44.2

Source: Company; Axis Securities

2
Other Key Concall Takeaways

1) Price hikes: The Company has taken price increase of around 2% in January in domestic markets to pass on the impact of higher
commodity prices. However, given a higher increase in commodities, 70-80 bps negative impact still remains, which the company
plans to offset by cost reduction efforts and improved product mix.

2) Capex: TVSL continued to guide for capex of ~Rs 500 crs for FY21 including some product development spends. It expects to
invest ~Rs 50 crs more in TVS Credit Services for business growth in Q4. On an annual basis, investments will be in a similar
pattern as FY21.

3) TVS Credit Services performance:TVS holds 84% stake in TVS Credit Services. As of December end, TVS Credit Services book
size stood at Rs 10,119crs. Management highlighted that retail finance penetration for TVS stood at ~46% in Q3 (vs. 49% last year).
As urban markets open up, penetration should improve further. TVS Credit Services reported PBT of Rs 59crs (Rs 48crs last year)
and PAT of Rs 43crs (vs. Rs 41 crs last year) in Q3. 85% of customers who had availed moratorium have become regular while the
rest have gone for restructuring. Collection efficiency had been impacted but is improving gradually. Gross NPA stood at 4.3% vs.
3.9% last year.

4) Inventory: Company’s inventory levels at dealers are at around 4 weeks.

5) Other takeaways:

 For 9MFY21, TVS has generated Rs 1,616crs of FCF aided by strong pickup in volumes in last two quarters, reduction in
working capital and low capex.
 TVS plans to launch new products (new models + variants) in 1nd half of FY22. Its electric scooter iQube has received good
response in Bengaluru and will be launched in more cities.
 The sale of premium brands (Apache, Ntorq and Jupiter) has grown well. The product mix improved from 34% to 37% during
the quarter.
 The company declared an interim dividend of Rs 2.1 per share absorbing a sum of Rs 99.77 crs for FY21.
 The spares revenue for Q3FY21 stood at Rs 522 crs.

Change in Estimates (Rs Crs)

Revised Old %Change
FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E
Revenue 16,776 20,543 23,964 15,778 19,195 22,380 6.3 7.0 7.1
EBITDA 1,356 1,760 2,133 1,208 1,680 2,046 12.3 4.7 4.3
PAT 557 820 1,079 433 728 961 28.6 12.6 12.3
EPS 11.7 17.3 22.7 9.1 15.3 20.2 28.6 12.6 12.3

Source: Company, Axis Research

3
Financials (Standalone)
Profit & Loss (Rs Crs)
Y/E March FY20A FY21E FY22E FY23E
Net revenues 16,423 16,776 20,543 23,964
Operating expenses 15,077 15,420 18,784 21,831
EBIDTA 1,346 1,356 1,760 2,133
EBIDTA margin (%) 8.2 8.1 8.6 8.9
Other income 30 40 42 43
Interest 102 145 127 101
Depreciation 489 493 578 633
Profit Before Tax 754 758 1,096 1,442
Tax 162 201 276 363
Reported Net Profit 592 557 820 1,079
Net Margin (%) 3.6 3.3 4.0 4.5
Adjusted Net Profit 616 557 820 1,079
Source: Company, Axis Securities

Balance Sheet (RsCrs)

Y/E March FY20A FY21E FY22E FY23E
Equity capital 48 48 48 48
Reserves & surplus 3,571 3,927 4,548 5,427
Shareholders’ funds 3,618 3,975 4,595 5,474
Total Loans 2,084 1,784 1,384 984
Deferred tax liability 158 158 158 158
Total Liabilities and Equity 5,860 5,917 6,138 6,617
Gross block 5,682 6,342 6,955 7,605
Depreciation 2,885 3,378 3,957 4,590
Net block 2,796 2,964 2,998 3,015
Capital WIP 285 125 163 163
Investments 2,606 2,806 3,006 3,206
Inventory 1,039 929 1,338 1,555
Debtors 1,281 1,149 1,407 1,641
Cash & Bank Bal 419 492 148 373
Loans & Advances 934 939 1,089 1,226
Current Assets 3,673 3,510 3,982 4,795
Sundry Creditors 2,886 2,873 3,397 3,947
Other Current Liability 176 176 176 176
Current Liability& Provisions 3,501 3,487 4,011 4,562
Net current assets 173 22 -29 234
Total Assets 5,860 5,917 6,138 6,617
Source: Company, Axis Securities

4
Cash Flow (RsCrs)
Y/E March FY20A FY21E FY22E FY23E
EBIT 857 863 1,181 1,500
Other Income 30 40 42 43
Depreciation & Amortization 489 493 578 633
Interest Paid (-) -102 -145 -127 -101
Tax paid (-) -162 -201 -276 -363
Extra Ord Income -30 0 0 0
Operating Cash Flow 1,081 1,050 1,399 1,712
Change in Working Capital 56 223 -294 -37
Cash Flow from Operations 1,138 1,273 1,105 1,675
Capex -787 -500 -650 -650
Strategic investments -300 -200 -200 -200
Non-Strategic Investments -5 0 0 0
Cash Flow from Investing -1,093 -700 -850 -850
Change in borrowing 706 -300 -400 -400
Others -176 0 0 0
Dividends paid (-) -200 -200 -200 -200
Cash Flow from Financial Activities 330 -500 -600 -600
Change in Cash 375 73 -345 225
Opening Cash 44 419 492 148
Closing Cash 419 492 148 373
Source: Company, Axis Securities

Ratio Analysis (%)

Y/E March FY20A FY21E FY22E FY23E
Revenue Growth -9.8 2.1 22.5 16.6

EBITDA Margin 8.2 8.1 8.6 8.9

Net Profit Margin 3.7 3.3 4.0 4.5

ROCE (%) 12.7 11.1 14.9 17.8

ROE (%) 17.2 14.3 18.7 21.0

EPS (Rs) 13.0 11.7 17.3 22.7

P/E (x) 22.9 45.1 30.6 23.3

P / BV (x) 3.9 6.3 5.5 4.6

EV / EBITDA (x) 11.7 19.5 15.0 12.1

Fixed Asset Turnover Ratio (x) 5.9 5.7 6.9 7.9

Debt Equity (x) 0.6 0.4 0.3 0.2

EV / Sales 1.0 1.6 1.3 1.1

Source: Company, Axis Securities

5
About the analyst

Analyst: Darshan Gangar

Contact Details: darshan.gangar@axissecurities.in

Sector: Auto

Analyst Bio: Darshan Gangar is Chartered Accountant with over a year of research experience in
the Mid Cap space and Auto sector.

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
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6
 DEFINITION OF RATINGS

Ratings Expected absolute returns over 12-18 months

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NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NO STANCE We do not have any forward looking estimates, valuation or recommendation for the stock

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