TVS Motor (TVSM) reported weak 4QFY2011 results, with the top line and bottom line coming in below our estimates. While the top-line performance was affected by lower-than-expected average net realisation, the bottom line was impacted by margin contraction and higher tax rate. We maintain our volume estimates for TVSM; however, we revise our earnings estimates marginally downwards to account for the high tax rate. We believe future valuations of the stock would be determined by consistent improvement in market share and margins going ahead. We maintain Accumulate on the stock.
Lower-than-expected performance for 4QFY2011: TVSM reported 34.3% yoy growth in its top line to `1,633cr, which was slightly below our expectation due to lower-than-expected average net realisation. Top-line performance was driven by a 27.4% yoy jump in volumes and 5.7% yoy increase in net average realisation at `30,062. On a sequential basis though, net sales declined by 0.8% primarily due to the 2.3% qoq decline in average net realisation. EBITDA margin declined by 89bp yoy and 52bp qoq to 5.6% on account of increased raw-material cost pressures and higher other expenditure. Net profit grew by 105.4% yoy to `41.7cr; however, it declined by 25.2% qoq due to weak performance at the operating level and increased tax outgo.
Outlook and valuation: At `56, the stock is trading at 12.8x FY2012E and 10.9x FY2013E earnings We estimate TVSM to post a CAGR of 14.6% in its top line and 13.7% in net profit over FY2011–13E, aided by a ~12% CAGR in volume and improving operating performance due to the change in product mix and better operating leverage. We maintain Accumulate on the stock with a target price of `62, valuing the company at 12x FY2013E earnings of `5.2.
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