TVS Motors? Q4FY11 results were disappointing even after adjusting for reported R90m cess provision made for its Himachal plant. Reported sales of R16 bn (up 34% YoY) and PAT of R417m (up 105%) came in below estimates. While a silver lining does exist in Ebitda margin, this does not satisfy key concerns. In the short term, TVSM’s consolidated results, and in the long term, slowdown in sales growth, intensifying competition and high operating leverage are key concerns. Maintain Sell.
TVSM?s reported PAT was significantly below our estimates. PBT (profit before tax) was in line with our estimates.
The silver lining is 6.7% Ebitda margin. Adjusting for product expenses that are amortised, these numbers come down to 5.6% and 5.3%.
Phasing out product expense amortisation and cost control could benefit TVSM as it has high operating leverage (a 1% shift in opex raises Ebitda 20-25%). However, the high operating leverage is what concerns us in an environment of declining growth, increasing competition and costs.
In FY10, consolidated Ebitda was 29% lower than the standalone Ebitda and EPS was at Re 0.3 versus standalone EPS of R1.85. Volumes in Indonesia have improved, but we do not see a dramatic improvement in profitability?Ebitda losses could be R432m versus R593m in FY10.