Technology

In line numbers adjusted for one offs: TVS Motor Company (TVSM)’s 3QFY2016
results adjusted for one-off items have come in in line with our estimates.
Revenues grew 11% yoy to Rs2,940cr, driven majorly by an 8% yoy growth in
volumes. Market share gains on back of success of new launches enabled TVSM
to post healthy volume growth during the quarter. Realisation/vehicle grew about
3% yoy to Rs41,868 driven by a better product mix. During the quarter TVSM
reported one-off expenses of Rs12.4cr (Rs7.5cr towards damages caused by
Chennai floods and Rs4.9cr towards increase in bonus expenses retrospectively
from April 2015). Adjusted for one-off items, the operating margin came in at
7.3% which is in line with our estimate. The adjusted net profit at Rs120.7cr was
in line with our estimates.
Outlook and valuation: The two wheeler industry is expected to recover in
FY2017 on back of implementation of Seventh pay commission and recovery in
the rural demand. Also, TVS Motor is likely to continue gaining market share on
back of new product launches and expanding geographical presence. Further,
the realization/vehicle is likely to improve given the increased proportion of the
non-moped segment. TVSM margins are also likely to improve as volumes pick
up, given the benefits of operating leverage, gradual reduction in marketing
expenses and reduction in material prices due to better vendor negotiations. We
expect TVS Motor to report revenue and Net profit growth of 16% and 53%
respectively in FY2017. We maintain our positive view on the stock and assign
“Accumulate” rating on the stock with a revised price target of Rs322 (based on
22x FY2017 earnings).

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