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MOSL: TVS MOTOR COMPANY (Neutral)-In-line op. performance; credible cost management

TVS MOTOR COMPANY: In-line op. performance; credible cost management

(TVSL IN, Mkt Cap USD3.6b, CMP INR562, TP INR625, 11% Upside, Neutral)

 

Management confident of achieving double-digit EBITDA margins

• TVS Motor Company (TVSL)’s operating performance was in-line, led by good cost management. However, higher interest/depreciation led to below-estimate PAT. As volumes return, profitability is expected to recover to over 10%.
• We increase our FY22 EPS estimate by ~7.6% to reflect higher realization and astute cost management, while maintaining our FY23E EPS estimate. Maintain Neutral, with TP of INR625.

 Price hikes and favorable mix offset high commodity cost inflation

• 1QFY22 revenue / EBITDA / adj. PAT declined 26%/49%/73% QoQ to INR39.3b/INR2.74b/INR757m.
• Net sales grew 175% YoY (-26% QoQ) to INR39.3b (v/s est. INR37.9b) as realizations grew 11.5% YoY (+4% QoQ) to INR59.8k (v/s est. INR57.7k).
• Gross margin contraction was restricted to ~40bp QoQ (+20bp YoY) to 24.3% (v/s est. 23.5%) – as commodity cost inflation was diluted by price hikes (110bps), a favorable mix, and cost management.
• The EBITDA margin declined 310bp QoQ to 7% (v/s est. 7.1%), impacted by higher staff cost and operating deleverage.
• Higher interest/depreciation restricted adj. PAT to INR757m (v/s est INR955m), decline of ~73% QoQ. An extraordinary expense of INR302m was reported due to COVID-related expenses.