Muted show, outlook weak for TVS Motor

The TVS Motor stock was down about 1.5 per cent to Rs 38.45 after the company reported disappointing numbers on the revenues and operating profit fronts. Increasing competition from rivals and falling demand are taking a toll on the company with volumes down four per cent year-on-year (y-o-y) and two per cent on a sequential basis in the March quarter.

While revenues were down three per cent sequentially due to a fall in realisations as well as volumes, the company managed to log a 6.7 per cent revenue growth on a y-o-y basis due to a higher proportion of three-wheelers in the portfolio. Three-wheelers constituted three per cent of volumes as compared to about 1.5 per cent in the year ago quarter.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) margins were down both y-o-y as well as sequentially by 60-70 basis points to 5.3 per cent due to higher marketing spends and power and distribution expenses, believe analysts. The only positive, according to Angel Broking's Yaresh Kothari, is that adjusted bottom line at Rs 58 crore for the quarter was ahead of estimates, led by a 53 per cent fall in interest cost. The company reduced its debt by about Rs 300 crore during the year. Including the exceptional charge of Rs 92 crore for the reduction in value of its European arm, TVS Motor Company (Europe), the company reported a net loss of Rs 33 crore.

To boost its revenues and stop the erosion of market share the company plans to introduce a new motorcycle and a new scooter this financial year. It also plans upgrades across the product portfolio and will introduce a diesel three-wheeler.

However, analysts are not too hopeful of the situation improving for the company. Says an analyst at a domestic brokerage, "While the fall in raw material cost is the only positive, the company faces multiple headwinds in terms of higher freight costs, intensifying competition especially from Honda Motorcycles and Scooters as well as a fall in demand which will keep the TVS' stock under pressure." The company has lost about 70 -100 bps in market share in motorcycles and in scooters in FY13.

The stock is trading at nine times FY14 earnings estimates. Though quite cheap, the loss in market share, rising competition and no immediate triggers means most analysts have a neutral or sell call on the stock.