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Key Highlights :

Overwhelming Scooter demand hinder new launch program- TVSMotors has seen a huge surge in demand for “Jupiter”. The over-whelming response has led to capacity constrains for its new offer-ing “Victor”. Victor is now slated to be launched in Q4FY16. Currentwaiting period for Jupiter is ~1 week. With a good response to Jupi-ter and launch of two new motorcycles Apatche and Victor, thecompany is quite confident of gaining a further foothold in the 2Wsegment.

Export market strong outlook augurs well for TVS – The company

has seen good traction from African countries such as Kenya & Nige-ria, while other Asian markets like Sri Lanka, Bangladesh & Nepalhave witnessed a sharp improvement. Current revenue contributionfrom African countries stands at ~50%, while the Asian share is~15%. TVS expects 3W volumes to pick in African countries goingforward, where its average market share is ~27%. For the currentqtr, export revenue has seen a uptick of 7% QoQ.

Festive season slump- During the ongoing festive season, TVS Mo-tors has seen its 2w market share at ~15%. Scooters have grownfaster than motorcycles and mopeds. Market demand has beensluggish due to rural segment being impacted by poor monsoons.

BMW project on track- The Company has made an investment ofEuro20mn in a joint design and development project with BMW tomanufacture motorcycles. BMW’s Concept bike has been well re-ceived in Brazil. New product with BMW is likely to hit Indian roadsby FY17E.

Price hike enable higher realization- The Company’s per unit reali-zations improved on the back of price hikes in the H2 of the lastfinancial year. No further hikes took place in the current financialyear on account of benign commodity prices. The management ex-pects soft commodity price benefits to continue in 3QFY16 as well.

Dark cloud persists over Indonesian operation- Volumes inIndonesia have continued to be slow and management has beentrying to improve utilizations by encouraging exports. Indonesiavolumes in Q2 stood 6,800 units. It is currently producing 2,500-3,000 units per month with the production capacity being 20,000units per month.

OPM expansion on radar- The company remains confident ofachieving a OPM of ~10% in the next 3yrs. Management expects thisimprovement on back of improvement in product mix, operatingleverages and success of new launches. For the FY16, managementaims for a further improvement of ~150bps to 200bps largely aidedby softness in RM cost .

CAPEX Plan – The company has maintained its CAPEX guidance of Rs3.5bn for FY16.

TVS Motors TVSl IN) - Results Q2FY16

INDSEC

CMP 272 Rating Unrated

Target Unrated Upside Unrated

Result (Rs.bn) Q2FY16 Q2FY15 Q1FY16 Y/Y(%) Q/Q(%)

Revenue 28.8 26.7 26.2 8.0 9.9

EBITDA 2.1 1.6 1.6 28.3 29.5

EBITDA(%) 7.4 6.2 6.2 116bps 111bps

PAT 1.2 0.95 0.90 22.8 28.9

PAT(%) 4.0 3.6 3.4 49bps 60bps

EPS 2.5 2.0 1.9 22.8 28.9

Robust Realization aid growth- TVS Motors reported a revenue

growth of 8% YoY (+9.9% QoQ) to Rs Rs 28.8bn. Revenue growth

was led by robust uptick in realization (+8.2% YoY, +3.2% QoQ).

However, volumes for qtr remain largely flat with a growth of0.4% YoY.

OPM surge- OPM improved by 116bps YoY to 7.4%. Operating

margins was the best the company has reported in over 5months.

OPM surged on back of sharp decline in raw mat cost of 221bps

YoY. EBITDA for the qtr stood at Rs 2.12bn up 28.3% YoY.

Higher Interest cost and increase in Dep charge weighs on PAT-

TVS motors reported a PAT growth of by 22.8% YoY to Rs 1.16bn.

PAT growth was restricted by higher interest cost (+1.9x YoY) and

higher dep charge (+27.3% YoY).

CONSOLIDATED FINANCIALS

Rs in bn FY14 FY15 FY16E FY17E

Revenue 79.6 103.1 117.7 137.7

EBIDTA 4.7 6.0 7.8 10.2

EBIDTA(%) 5.9 5.8 6.6 7.4

PAT 2.8 3.3 4.3 5.9

PAT(%) 3.5 3.2 3.6 4.2

EPS 5.4 6.9 8.5 12.4

P/E (x) 50.3 39.2 31.8 21.8

Source: Company, Bloomberg Consensus

About the company: TVS Motor Company is the third largest two-wheeler manufacturer in India and one among the top ten in theworld, with annual revenue of more than Rs. 10,131 Cr in 2014-15(around USD 1.6 billion), and is the flagship company of the, USD7.29 billion in 2013-14, TVS Group. The company has a productioncapacity of 3 million 2 wheelers & 1.2 Lakh 3 wheelers a year.. TVSMotor currently manufactures a wide range of two-wheelers. Thecompany has four manufacturing plants, three located in India(Hosur, Tamil Nadu and Mysore, Karnataka and Nalagarh,Himachal Pradesh) and one in Indonesia (Karawang).

STOCK DETAILS

BSE Code 532343

NSE Code TVSMOTOR

Market Cap (Rs.bn) 129.1

Sector 2/3 Wheelers

Year End March

52 w.High/Low 322/201

Avg Daily Turnover (Rs.bn) 0.36

Shares in Issue (mn) 475.09

BSE Sensex 27040

NSE Nifty 8171

Valuation & View: At CMP of Rs.272, the stock is trading at 31.8xFY16E and 21.8x FY17E consensus estimates. We believe the currentvaluation has factored in much of the future growth prospect. Thecompany has introduced new variants in the domestic market alongwith robust improvement expected in exports, which could help the

company with better volumes and margin. Going ahead, the com-pany’s ability to meet its margin target would also hold a key forbetter valuations for the stock. We hold a Neutral outlook on thestock.

INDSEC SECURITIES AND FINANCE LTD.

O

CTOBER

28, 20151

R

AHUL

DANI

[email protected]

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INDSEC

BUY : Expected total return of over 25% within the next 12 months.

ACCUMULATE : Expected total return between 10 to 25% within the next 12 months.

REDUCE : Expected total return below 10% within the next 12 months.

SELL : Expected total return is below the market return within the next 12 months.

NEUTRAL: No investment opinion on the stock under review.

BUSINESS ACTIVITIES:

Indsec Securities and Finance Limited (ISFL) is a corporate member of BSE in Equity, WDM segment and of NSEIL in Equity, WDM, Futures & Options and Currency Deriva-tive segments. ISFL is also a Depository Participant of the National Securities Depository Limited (NSDL) and a SEBI registered Portfolio Manager. ISFL has also securedmembership of the MCX Stock Exchange in Currency Derivative Segment. With this setup ISFL is in a position to offer all types of services in the securities industry.

Since inception company’s focus has been on research. In view of its research capabilities ISFL focused mainly on institution al business and is today empanelled withmost of the local financial institutions, insurance companies, banks and mutual funds. ISFL has grown from being a medium size broking outfit to become one of thelargest capitalized Indian broking company offering the complete range of broking services.

ISFL was incorporated on 28th July 1993 and doesn’t have any associates/ subsidiaries. ISFL is a registered Portfolio Manager under SEBI (Portfolio Managers) Regula-tions, 1993 vide registration No. INP000001892.

DISCIPLINARY HISTORY:

No material penalties / directions have been issued by the SEBI under the securities laws, SEBI Act or Rules or Regulations made there under

No penalties have been imposed for any economic offence by any authority.

No material deficiencies in the systems and operations of the Company have been observed by any regulatory agency.

There are no pending material litigations or legal proceedings, findings of inspections or investigations for which action has been taken or initiated by any regula-tory authority against the Company or its Directors, principal officers or employees or any person directly or indirectly connected with the Company.

DECLARATION:

ISFL does not have any financial interest in the subject company (ies);

ISFL does not have actual or beneficial ownership of 1 % or more in the subject company (ies);

ISFL does not have any material conflict of interest in the subject company(ies) at the time of publication of this document;

ISFL has not received any compensation from the subject company (ies) in the past twelve months;

ISFL has not managed or co-managed public offering of securities for the subject company (ies) in the past twelve months;

ISFL has not received any compensation for investment banking or merchant banking or brokerage services or any other service from the subject company (ies) inthe past twelve months;

ISFL has not received any compensation or other benefits from the subject company (ies) or third party in connection with this document;

None of the research analysts have served as an officer, director or employee of the subject company (ies);

ISFL has not been engaged in the market making activity for the subject company (ies);

GENERAL TERMS AND CONDITION/ DISCLAIMERS:

This document has been issued by ISFL and is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of security.

This document has been prepared and issued on the basis of publicly available information, internally developed data and other sources believed to be reliable. However,we do not guarantee its accuracy and the information may be incomplete and condensed. Note however that, we have taken meticulous care to ensure that the factsstated are accurate and opinions given are fair and reasonable, neither the analyst nor any other employee of our company is in any way responsible for its contents. TheCompany’s research department has received assistance from the subject company (ies) referred to in this document including, but not limited to, discussions withmanagement of the subject company (ies). All opinions, projections and estimates constitute the judgment of the author as of the date of this document and these,including any other information contained in this document, are subject to change without notice. Prices and availability of financial instruments also are subject tochange without notice. While we would endeavor to update the information herein on reasonable basis, we are under no obligation to update or keep the informationcurrent. Also, there may be regulatory, compliance, or other reasons that may prevent us from doing so.

Securities recommended in this document are subject to investment risks, including the possible loss of the principal amount invested. Any decision to purchase/salesecurities mentioned in this document must take into account existing public information on such security or any registered prospectus. The appropriateness of a particu-lar investment, decision or strategy will depend on an investor's individual circumstances and objectives. The securities, instruments, or strategies discussed in this docu-ment may not be suitable for all investors, and certain investors may not be eligible to purchase or participate in some or all of them. Each recipient of this documentshould make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this docu-ment (including the merits and risks involved).

This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country orother jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject the company to any registration orlicensing requirement within such jurisdiction. Further, this document is not directed or intended for distribution to the US taxpayers covered under US Foreign Account

Tax Compliance Act (FATCA) provisions. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Personsin whose possession this document may come are required to inform themselves of and to observe such restriction

This is just a suggestion and the company will not be responsible for any profit or loss arising out of the decision taken by the reader of this document. Any comments orstatements made herein are those of the analyst and do not necessarily reflect those of the company. No matter contained in this document may be reproduced orcopied without the consent of the company. Any unauthorized use, duplication, redistribution or disclosure is prohibited by law and will result in prosecution. Theinformation contained in this document is intended solely for the recipient and may not be further distributed by the recipient. The Company accepts no liabilitywhatsoever for the actions of third parties.

INDSEC Rating Distribution

DISCLOSURE

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CONTACT DETAILS

For additional information please contact: [email protected], or visit us at www.indsec.co.in

Indsec Securities & Finance Ltd, 301/302, "215 Atrium", "A" Wing, Andheri-Kurla Road, Chakala, Andheri (East), Mumbai - 400 093Telephone: +91 22 6114 6114 / 6114 6100, Fax: +91 22 6114 6180 / 86

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Management Designation Email ID Direct No. (+91-22)

Nandkishore Gupta Managing Director [email protected] 6114 6101/02

Research Team Designation [Sectors Covered] Email ID Direct No. (+91-22)

Milan Wadkar Vice President-Research (Auto & Mid Caps) [email protected] 6114 6105

Basanth Patil N P Sr. Research Analyst (Cement & Midcap) [email protected] 6114 6139

Rahul Dani Research Analyst [email protected] 6114 6116

Dhavan Shah Research Analyst [email protected] 6114 6140

Rohan Adhiya Research Associate [email protected] 6114 6109

Deepesh Panchawala Technical Analyst [email protected] 6114 6136

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Nilesh Mistry Head – Sales [email protected] 6114 6125

Parag Shah Sales Trader [email protected] 6114 6133

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