Technically, TVS has to sustain over 325-335 zone for further rally up to 350-365; otherwise, selling pressure may intensify and below 322-309 may again fall towards 280-255 zone in the near term.
Trading Idea: TVS Motors
CMP: 317
Either sell below 322-325 or on rise around 335-345;
TGT: 309-295*-280-267-255*-240 (1-3M)
TSL> 355
Note: Consecutive closing (3 days) above 350 zone for any reason, TVS may further rally up to 365-375-386-402 & 422-450 in the near to long term (alternative bullish case scenario from the present trading level).
For TVS, recent deal with SNAPDEAL to sell its bikes/scooters on its online platform and launching of new models along with hopes of revival in rural spending (favourable budget) & OROP disbursements may be some of the triggers. TVS may also launch an entry level BMW-TVS bike (G-310R) for an expected price tag of around Rs.2 laks, possibly in Dec'16.
Analysts are expecting an incremental EPS ranging between INR 1-3/share (~2) for this BMW venture in FY-17.
Analysts are expecting an incremental EPS ranging between INR 1-3/share (~2) for this BMW venture in FY-17.
But there may be some doubt about the success of SNAPDEAL platform as majority of the 2-W customers will prefer to try a bike/scooter off line (physically) at the dealer space and then go for a buying decision.
Although TVS management kept its guidance of 10% EBITDA margin by FY-18, analysts are somehow skeptical as fixed costs are at elevated level and incremental benefit of lower costs of raw materials (commodities-steel/rubber etc) may not be there as before.
Also the company is adopting policy of gaining of market share in lieu of margins (offering more discount to the dealers for the increase in volume).
TVS is relying on new models (Victor-commuter segment & Apache-200- premium segment) for its growth and aiming at increase its domestic market share by just 1% from present 14% to 15% (earlier guidance was at 18% by FY-17-18). Also success of Jupiter, Star City & Scooty Zest range of scooters is encouraging and the company will also launch a moped in UP/Pan India.
TVS is now the 2-nd largest in domestic scooters and 3-rd largest in motorcycles market.
For the overall 2-W market, TVS expected a 2% growth in FY1-6 and 5-6% in FY-17. For the motorcycle and scooter segment, TVS now has around 9% & 15.5% market share.
But there will be also intense competition in the 2-W market, specially in the scooter segment (increasing urban demand); e.g. Hero Motors are launching new scooter models.
Growth of motorcycles will depend on the actual recovery in rural demand as even after considering the pro-rural budget this year, the implementation of the same and the progress & distribution of monsoon will be the keys.
Exports to African nations are showing some headwinds for FX volatility and availability if USD, although retail sales are still growing. African nations accounted for more than 50% of exports (both 2/3-W) and among those, Nigeria almost accounted 50%.
TVS has guided an overall export market share of 20% & 35% for 2/3-W by FY-18. Some analysts are apprehending weakness in 3-W export to be continued for next 2-3 quarters.
Other exporting zones of TVS are Indonesia, Latin America, Middle East. Notably, Indonesian operations are subdued and and continue to be so in the coming days due to weak macro and lower capacity utilization (recorded a Q3F1Y16 EBITDA loss of USD 5 mln). TVS also export Bebex/Scubex range of 2-W to Africa from the Indonesian plant, which is running around 10% of capacity utilization.
Q3FY16 result of TVS was below street estimates even after factoring Chennai floods and one time employee bonus factor (retrospective amendment).
Q3FY16 PAT was at Rs.107.70 cr against estimates for Rs.125 cr (YOY-90.18; QOQ-116.41). One time provision for Chennai flood was at Rs.7.5 cr and employee bonus expenses was at Rs.10.6 cr (out of which Rs.5.7 cr was for FY-15).
Q3FY16 EBITDA was at Rs.202.26 cr against street estimates of Rs.222 cr (YOY-160.20; QOQ-211.93).
Q3FY16 OPM was at 6.9% against expectation of 7.5% (YOY-6.04%; QOQ-7.2%).
Q3FY16 reported EPS was at 2.27 against consensus of 2.60 (YOY-1.90; QOQ-2.45).
Although TVS management kept its guidance of 10% EBITDA margin by FY-18, analysts are somehow skeptical as fixed costs are at elevated level and incremental benefit of lower costs of raw materials (commodities-steel/rubber etc) may not be there as before.
Also the company is adopting policy of gaining of market share in lieu of margins (offering more discount to the dealers for the increase in volume).
TVS is relying on new models (Victor-commuter segment & Apache-200- premium segment) for its growth and aiming at increase its domestic market share by just 1% from present 14% to 15% (earlier guidance was at 18% by FY-17-18). Also success of Jupiter, Star City & Scooty Zest range of scooters is encouraging and the company will also launch a moped in UP/Pan India.
TVS is now the 2-nd largest in domestic scooters and 3-rd largest in motorcycles market.
For the overall 2-W market, TVS expected a 2% growth in FY1-6 and 5-6% in FY-17. For the motorcycle and scooter segment, TVS now has around 9% & 15.5% market share.
But there will be also intense competition in the 2-W market, specially in the scooter segment (increasing urban demand); e.g. Hero Motors are launching new scooter models.
Growth of motorcycles will depend on the actual recovery in rural demand as even after considering the pro-rural budget this year, the implementation of the same and the progress & distribution of monsoon will be the keys.
Exports to African nations are showing some headwinds for FX volatility and availability if USD, although retail sales are still growing. African nations accounted for more than 50% of exports (both 2/3-W) and among those, Nigeria almost accounted 50%.
TVS has guided an overall export market share of 20% & 35% for 2/3-W by FY-18. Some analysts are apprehending weakness in 3-W export to be continued for next 2-3 quarters.
Other exporting zones of TVS are Indonesia, Latin America, Middle East. Notably, Indonesian operations are subdued and and continue to be so in the coming days due to weak macro and lower capacity utilization (recorded a Q3F1Y16 EBITDA loss of USD 5 mln). TVS also export Bebex/Scubex range of 2-W to Africa from the Indonesian plant, which is running around 10% of capacity utilization.
Even after considering all the above sets of positive & known news for the scrip, the recent surge in price may have discounted the same to a great extent and technically 325-335-345 may be a good supply zone for
the scrip.
Q3FY16 PAT was at Rs.107.70 cr against estimates for Rs.125 cr (YOY-90.18; QOQ-116.41). One time provision for Chennai flood was at Rs.7.5 cr and employee bonus expenses was at Rs.10.6 cr (out of which Rs.5.7 cr was for FY-15).
Q3FY16 EBITDA was at Rs.202.26 cr against street estimates of Rs.222 cr (YOY-160.20; QOQ-211.93).
Q3FY16 OPM was at 6.9% against expectation of 7.5% (YOY-6.04%; QOQ-7.2%).
Q3FY16 reported EPS was at 2.27 against consensus of 2.60 (YOY-1.90; QOQ-2.45).
Valuation as par BG metrics & current market scenario:
Actual TTM EPS: 8.53
Projected FWD EPS: 8.80-9.70-11.75 (FY:16-18)
Average ideal PE:20-25
Current median valuation may be around: 245 (FY:15)
Projected fair valuations might be around: 250-260-290 (FY:16-18)
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | Low | High | Median | 200-DEMA | 10-DEMA |
| TVSMOTOR | 8.53 | 34.63 | 25 | 238.68 | 249.40 | 244.04 | 267.15 | 291.67 |
| TVSMOTOR | 8.8 | 40.05 | 25 | 242.43 | 253.31 | 247.87 | 267.15 | 291.67 |
| TVSMOTOR | 9.7 | 46.25 | 25 | 254.53 | 265.95 | 260.24 | 267.15 | 291.67 |
| TVSMOTOR | 11.75 | 55.85 | 25 | 280.13 | 292.71 | 286.42 | 267.15 | 291.67 |
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