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MOSL: TVS MOTOR COMPANY (Neutral)-Above-estimate-margins resilient despite volume weakness

TVS Motor Company: Above-estimate; margins resilient despite volume weakness

(TVSL IN, Mkt Cap USD3b, CMP INR455, TP INR460, 1% Upside, Neutral)

 

Cost cutting drives margins; Volume weakness offsets margin upgrade

• TVSL’s strong operating performance (driven by cost reduction), despite the volume weakness (op. leverage), was commendable and instills confidence of double-digit margins by FY22 as volumes recover.
• However, our FY20/21E EPS is largely unchanged as the cut in our volume estimates offsets the upgrades in the margin estimates. We maintain Neutral with a TP of ~INR460 (~18x Mar’22E consol. EPS). 

Margins sustain near historical highs, lower tax results in stable PAT

• Revenue/EBITDA declined 11.5%/3% YoY to ~INR41.2b/INR3.6b, while adj. PAT was up 1% YoY at INR1.8b. For 9MFY20, revenue/EBITDA/PAT declined ~6%/2%/4% YoY.
• Volume declined by ~17% YoY (-7% QoQ). Realizations were up ~7% YoY (+2% QoQ) at INR50.2k (our estimate: INR49.3k), driven by a better mix and favourable FX.
• Gross margin expanded ~360bp YoY (+120 QoQ) to 27.8% (our estimate: 26.3%), driven by cost initiatives (contributed 230bp YoY and 60-70bp QoQ) and lower commodity cost.
• EBITDA margins improved 70bp YoY (flat QoQ) to 8.8% (our estimate: 8.4%).
• Low tax boosted adj. PAT to ~INR1.8b (our estimate: ~INR1.4b), an increase of ~1% YoY (-8% QoQ).