TVS Srichakra - 2QFY2016 Result Update - Angel Broking

TVS Srichakra (TVSSl) reported a good set of numbers for 2QFY2016. The top-line grew by 6.5% yoy to Rs. 522cr. The EBITDA margin expanded by 539bp yoy to 15.7%, mainly due to a 997bp yoy decline in raw material cost (owing to rubber prices declining by ~6% qoq). The company has reduced the debt significantly (from Rs. 176cr to Rs. 37cr) in 1HFY2016 and as a result its interest expense has declined by 57.0% yoy to Rs. 4cr. Owing to better operational performance and lower interest outgo, the net profit nearly doubled to Rs. 49cr from Rs. 26cr in the same quarter of the previous year.

Steady two-wheeler (2W) sales and capacity expansion by top clients to aid top-line growth: TVSSL's key client Honda Motorcycle & Scooter India (HMSI) continues to be the steady performer in comparison to its peers. HMSI has set out aggressive plans to scale up its business in India with a view to become the largest subsidiary of its parent. HMSI has mentioned that capacity constraints had resulted in the company not being able to grow at a faster pace and has lined up aggressive capex plans for the future. We expect capacity addition by major clients to result in good revenue visibility for TVSSL as it is a market leader in the 2W OEM segment. Additionally, the company (TVSSL) wants to garner a larger share in the high margin replacement market segment where it holds the number three position. The strong growth experienced in 2W sales in the past year will result in better performance for the aftermarket segment of the company.

Outlook and valuation: We expect TVSSL's top-line to grow at a CAGR of 11.0% over FY2015-17E to Rs. 2,338cr. We expect the operating margin to be at 15.0% in FY2017E on the back of lower rubber prices and improvement in market share in the aftermarket segment. Consequently, the net profit is expected to be at Rs. 207cr in FY2017E. At the current market price, the stock is trading at a PE of 10.4x its FY2017E earnings. We have a Buy rating on the stock with a revised target price of Rs. 3,240 based on a target PE of 12.0x for FY2017E earnings.

Shares of TVS SRICHAKRA LTD. was last trading in BSE at Rs.2815 as compared to the previous close of Rs. 2790.5. The total number of shares traded during the day was 2151 in over 344 trades.

The stock hit an intraday high of Rs. 2825 and intraday low of 2751. The net turnover during the day was Rs. 6010201.

Source : Equity Bulls

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