Stock Review: TVS MOTOR

TVS Motor, the smallest of the three listed players in the twowheeler market, has carved out a niche for itself in this intensely competitive market, with its mopeds and Scooty Pep models. The company also has a presence in the fast-growing motorcycle market, but its market share in this segment is much smaller than larger rivals Bajaj Auto and Hero MotoCorp.

TVS Motor, like other players, is also expanding its presence in rural markets at a time when the broader two-wheeler market is grappling with higher auto finance rates. However, the company's ability to manage rising commodity input prices over the past several quarters has been quite mediocre compared to Bajaj Auto, which enjoys the highest operating margins.

BUSINESS

TVS Motor is present across different segments of the two and three-wheeler market. Its popular model in the scooter segment is Scooty Pep, while in the motorcycle segment it competes through models like Max, Centra and Victor. In addition, the company has a strong presence in the moped segment with its TVS 50 model.

TVS Motor's total vehicle sales during FY11 amounted to nearly 2.05 million units, a rise of 33% y-o-y. Bajaj Auto sold 3.8 million units during FY11 and Hero MotoCorp 5.4 million units.

FINANCIALS

The company's operating profit margin was broadly flat on a yo-y basis at 7.2% in the June 11 quarter. Net sales grew 25.3%, and net profit improved 45.5% y-o-y in the quarter.

Its average realisations improved nearly 8.4% y-o-y in the first quarter of FY12, while volumes grew 15.6%. This helped it deal with rising commodity input costs to some extent.

TVS Motor's operating margins are mediocre compared to its peers. For the trailing 12-months ended June, its operating margins improved nearly 200 basis points y-o-y to 6.3%. Bajaj Auto's operating margins were at 19.5% in this period, a decline of 110 basis points.

GROWTH DRIVERS/CONCERNS

Many states across the country have allowed fresh permits for three wheelers. This should benefit TVS Motor. Three wheeler vehicles enjoy comparatively higher margins, point out analysts. Key commodity input prices have shown signs of easing, but they remain at elevated levels. The company's ability to manage this cost will be crucial. Also, auto finance rates are on an upward trend and are likely to impact vehicle sales in the short term.

VALUATIONS

TVS Motor trades at a P/E of nearly 11.4 times on a trailing four-quarter basis. Bajaj Auto trades at 12 times, while Hero MotoCorp trades at 20 times. Rather than TVS Motor, investors should consider Bajaj Auto which has posted superior operating margins.