TVS Motor Company Limited (TVSM) reported disappointing set of numbers for Q4FY18. Standalone revenue for the quarter was up 40% yoy at Rs3,993cr, in-line with consensus estimate. TVSM reported EBITDA of Rs281cr, growth of 74% yoy. EBITDA margin expanded 135bps yoy to 7%. EBITDA was 18% below consensus estimate of Rs342cr and EBITDA margin was significantly below consensus margin estimate of 8.6%. The disappointment at the operating level was due to raw material inflation, higher operating expenses related to new launches and higher employee costs. Standalone PAT was up 31% yoy at Rs166cr. This was 16% below consensus estimate of Rs197cr. PAT was affected by higher tax rate, depreciation and interest expenses and lower other income. Tax outgo was higher due to reduction in R&D benefits and completion of tax benefits at company’s facility in Himachal Pradesh. To summarize, the numbers for the quarter were below consensus estimate on all three counts i.e. top-line, EBITDA and bottom-line.
Operating expenses surged 45% yoy in Q4FY18. As per the management, operating expenses were higher due to high Advertising and Promotion (A&P) expenses relating to new launches. The company also gave higher dealer margins to support new launches.
Employee costs too were up 31% yoy due to high wage costs. The State Governments of Tamil Nadu and Karnataka increased minimum wages, resulting in surge in employee costs.
Realization during the quarter was up 6.5% yoy due to better product mix. Most of TVSM’s new launches are higher engine capacity products with higher realizations. Within the total volume mix, there was a higher proportion of exports (18.1% in Q4FY18 vs. 16.4% in Q4FY17), 3Ws (3.3% in Q4FY18 vs. 2.3% in Q4FY17). Contribution of mopeds, which have lower realizations, contributed 26.2% to total volumes in Q4FY18 vs. 32.8% in Q4FY17.
For the full year FY18, standalone revenue was up 25% yoy led by 19% yoy volume growth and 5% yoy realization growth. 3Ws led volume growth for FY18 (up 50% yoy), followed by exports (up 35% yoy), scooters (up 30% yoy) and motorcycles (up 26% yoy). Moped volumes swayed between growth and de-growth, with each happening for 6 out of 12 months. It is difficult to spot a trend as far as this category is concerned. While mopeds and (entry level and commuter) motorcycles are primarily a rural phenomenon, scooters are preferred in urban areas. However, it is expected that scooters will soon find resonance in rural areas as well due to their appealing features, utility and ease of commuting.
Total cash, cash equivalents and bank balance on standalone books of the company increased 16% yoy in FY18. Total debt (LT + ST) on books reduced 4% yoy. D/E ratio improved from 0.45x in FY17 to 0.36x in FY18.
Investments made by TVSM in Q4FY18:
Rs103cr in Sundaram Auto Components Limited, Chennai
Rs19.42cr in PT TVS Motor Company, Indonesia
Rs25cr in TVS Credit Services Limited, Chennai
Rs6.37cr in TVS Motor Singapore Pte Ltd, Singapore
Highlights of post-result conference call
The quarter saw significant increase in employee costs due to upward wage revision in Tamil Nadu and Karnataka to the extent of 30%.
As per the management, there were four headwinds to operating margins during the quarter i.e. raw material inflation, wage increases, A&P expenses incurred for new launches and A&P expenses incurred for Auto Expo 2018.
Price hike taken in January 2018 was passed on to dealers to push new launches. Company took another 0.5% price hike in April-May 2018.
The management expects A&P expenses to come down in subsequent quarters, as the recent launches have been very well accepted by customers.
BMW JV volumes in FY19 were 26,471 units.
Current installed capacity is 1,80,000 units per year for 3Ws and 48 Lakh units per year for 2Ws. This capacity is fungible between motorcycles and scooters and will be sufficient for next one year.
Capex guidance for FY19 is Rs700cr.
Against 25% tax rate in FY18, it will be in the range of 28-29% in FY19
TVS Motor Company Ltd is currently trading at Rs. 611.20, down by 10.15 points or 1.63% from its previous closing of Rs. 621.35 on the BSE.
The scrip opened at Rs. 626 and has touched a high and low of Rs. 630 and Rs. 580.40 respectively. So far 76,88,595 (NSE+BSE) shares were traded on the counter. The stock is currently trading above its 200 DMA.
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