MOSL: TVS MOTOR COMPANY (Neutral)-Below estimate-Margins disappoint again-cutting estimates by 11-12%
TVS Motor Company: Below estimate; Margins disappoint again; cutting estimates by 11-12%
(tVsl IN, Mkt Cap USD4.3b, CMP INR610, TP INR635, 4% Upside, Neutral)
- RM inflation and higher import duty impact gross margin: Volumes grew 32% YoY (+7.6% QoQ) to 889.1k units. Realizations rose 0.7% QoQ (+6.3% YoY) to INR44.9k (in-line) due to a favourable mix. Gross margin of 26.2% (est. of 27.1%) contracted by ~110bp QoQ (+130bp YoY), primarily due to ~120bp impact of RM inflation. EBITDA margin of 7% came in below our estimate of 8.1% due to RM inflation, higher staff cost (+30bp, due increase in minimum wages in TN/Karnataka) and ~50bp impact of Auto Expo & new product launches. Further, higher depreciation and interest cost restricted PAT growth to ~31% YoY (INR1.65b v/s est. INR1.74b).
- FY18 revenue/EBITDA/PAT grew ~25%/32%/19%.
- Earnings call highlights: a) Management maintained double-digit margin target, but refrained from providing timeline. b) Expects industry growth of 8-10% in FY19 and TVSL to outperform. c) Taken price hike of 0.4% in Jan-18 to support dealer margin and ~0.5% in Apr-18 to pass cost inflation. d) Expects further RM inflation pressure in 1HFY19. e) Indonesia subsidiary recorded PBT loss of USD3.7m in FY18 (flat YoY). f) NBFC subsidiary had loan book of INR61b as of Mar-18 and networth of ~INR8.9b.
TVS Motor Company Limited. TVS Motor Company Limited is engaged in the manufacturing of motorcycles, scooters, mopeds, three wheelers, parts and accessories. The Company's motorcycles include Apache Series RTR, Phoenix 125, Victor, StaR City+, Sport and Max4R. Its scooters include Jupiter, Wego, Scooty Zest 110, Scooty Streak and Scooty Pep +. Its mopeds include XL 100, XL Super and XL Super Heavy Duty. Its three wheelers include TVS King. It has approximately four manufacturing plants, approximately three located in India (Hosur, Tamil Nadu; Mysore, Karnataka, and Nalagarh, Himachal Pradesh) and one in Indonesia (Karawang). The Company's TVSM Service(Beta) mobile application features include service schedules, service booking, and news and updates, among others. Its subsidiaries include PT. TVS Motor Company Indonesia, TVS Motor Company (Europe) B.V., TVS Motor (Singapore) Pte. Limited, Sundaram Business Development Consulting (Shanghai) Company Limited and Sundaram Holding USA Inc., among others.
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