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TVS Srichakra Ltd Research Report - 21st Jan 2016

Tyre | Published on Nov 09th 2015

IT

TVS Srichakra (TVSSl) reported a good set of numbers for 2QFY2016. The top-line grew by 6.5% yoy to Rs522cr. The EBITDA margin expanded by 539bp yoy to 15.7%, mainly due to a 997bp yoy decline in raw material cost (owing to rubber prices declining by ~6% qoq). The company has reduced the debt significantly (from Rs176cr to Rs37cr) in 1HFY2016 and as a result its interest expense has declined by 57.0% yoy to Rs4cr. Owing to better operational performance and lower interest outgo, the net profit nearly doubled to Rs49cr from Rs26cr in the same quarter of the previous year. Steady two-wheeler (2W) sales and capacity expansion by top clients to aid top-line growth: TVSSL’s key client Honda Motorcycle & Scooter India (HMSI) continues to be the steady performer in comparison to its peers. HMSI has set out aggressive plans to scale up its business in India with a view to become the largest subsidiary of its parent. HMSI has mentioned that capacity constraints had resulted in the company not being able to grow at a faster pace and has lined up aggressive capex plans for the future. We expect capacity addition by major clients to result in good revenue visibility for TVSSL as it is a market leader in the 2W OEM segment. Additionally, the company (TVSSL) wants to garner a larger share in the high margin replacement market segment where it holds the number three position. The strong growth experienced in 2W sales in the past year will result in better performance for the aftermarket segment of the company. Outlook and valuation: We expect TVSSL’s top-line to grow at a CAGR of 11.0% over FY2015-17E to Rs2,338cr. We expect the operating margin to be at 15.0% in FY2017E on the back of lower rubber prices and improvement in market share in the aftermarket segment. Consequently, the net profit is expected to be at Rs207cr in FY2017E. At the current market price, the stock is trading at a PE of 10.4x its FY2017E earnings. We have a Buy rating on the stock with a revised target price of Rs3,240 based on a target PE of 12.0x for FY2017E earnings.

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CMP 2,803
Target Price 3,240
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)2,567.40
MCAP NSE (Rs in Cr)2,573.99
P/E (x)13.18
EPS (Rs.)254.24
BV (Rs.)546.36
Div Yield (%)1.79
FV (Rs.)10.00
P/BV (x)6.13
EV/Sales (x)1.19
EV/EBITDA (x)8.81

Shareholding Pattern (%)

Promoter45.0
Public & Others44.0
Corporate8.0
Institution2.0
Foreign1.0
Grand Total100.0

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