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TVS Srichakra Ltd Research Report - 18th May 2016

Tyre | Published on May 18th 2016


TVS Srichakra (TVSSL) reported a good set of numbers for 4QFY2016. Its top-line grew by 13.0% yoy to Rs525cr. On the operating front, the raw material cost came down significantly, ie by 805bp yoy to 48.1% of sales. Still, the EBITDA margin expanded by a marginal 68bp yoy to 14.5% as raw material cost savings were offset by higher employee and other expenses. The depreciation expense declined by 36.1% on a yoy basis owing to higher depreciation in 4QFY2015 (adjustments in accounting policy in the previous year). The other income increased to Rs18cr (against Rs3cr in 4QFY2015) which we believe was owing to profits from sale of its subsidiary. Adjusting for the higher other income, the profit grew by 28.2% yoy to Rs44cr. Leadership position in 2W OEM segment and growing share in aftermarket segment: TVSSL has been able to maintain its leadership position in the 2W OEM segment and grow further in the aftermarket space which has enabled it to post good growth in the past year despite of fall in realizations. Going forward, we believe the company will be able to maintain growth on the top-line front given the encouraging outlook for the 2W industry. The company continues to invest in brand building and promotions to compete better in the aftermarket space. Outlook and valuation: TVVSL has been outperforming the tyre industry over the past two years which has resulted in it posting good growth on the top-line front despite of declining realizations. While rubber prices have surged recently, we believe that TVVSL will be able to pass on the increase in RM cost in the OEM segment. Additionally, the outlook on the 2W industry is favorable which augurs well for the company as it is predominantly a 2W tyre manufacturer. We expect the company to post revenue CAGR of 12.6% over FY2016-18E to Rs2,614cr. With higher RM prices, we expect margins to contract by 182bp over FY2016-18E to 13.8%. The company has increased its capacity and plans to invest in further capacity expansion which will increase the depreciation expense going forward.

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CMP 2,419
Target Price 2,932
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others50.0
Grand Total100.0

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