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MOSL: TVS MOTOR COMPANY (Neutral)-Below est.-margins disappoint again, cutting estimates by 12%

TVS Motor Company: Below est.; margins disappoint again, cutting estimates by 12%

(TVSL IN, Mkt Cap USD3.8b, CMP INR549, TP INR548, Neutral)

 

• RM inflation impacts margins: TVSL adopted Ind-AS 115 from 1QFY19, which has resulted in netting-off of certain freight from revenue (v/s accounting in other expenses earlier). This has impact on realizations and margins, without having any impact on EBITDA/PAT. Volumes grew 16% YoY (+4% QoQ) to 928.3k units. Realizations grew 5.6% YoY (-0.4% QoQ) to INR44.7k (est. of INR45.1k). Revenue increased 22% YoY to ~INR41.5b (adj. revenue at ~INR42.4b v/s est. of INR41.9b). Higher RM cost (~80bp QoQ on adjusted basis) impacted EBITDA margin. Adj. EBITDA margin expanded 100bp YoY (+20bp QoQ) to 7.2% (est. of 7.8%). Further, higher tax restricted PAT growth to just ~13% YoY (-11% QoQ) to INR1.47b (est. of INR1.72b).
• Earnings call highlights: (a) Expects industry to grow at 10-12% in FY19, with TVSL expected to grow faster. Even exports outlook is very robust in key markets. (b) It is not reacting to aggressive pricing in commuter segment. (c) It expects further commodity price inflation in 2QFY19, post which RM cost should stabilize. (d) TVS Credit Services (captive financing arm) ramp-up continues with ~38% disbursal growth in 1QFY19, with a book size of ~INR65b and PAT of ~INR300m. This NBFC now has ~50% share of volumes financed for TVS.