BackBetter realizations fail to rev up profit margin for TVS
Costs have been rising, which is seen in the flat operating margin at 6%, in spite of higher realization
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TVS Motor Co. Ltd put up a decent show for the December quarter, driven by strong growth in exports and three-wheeler sales. However, operating margins disappointed.
A 13% increase in net revenue from the year-ago period to ₹ 2,058 crore and a stellar 12.7% jump in average realization came about due to higher proportion of three-wheelers, scooters and exports. TVS sold 52% more three-wheelers and clocked a 22% jump in exports.
According to Yaresh Kothari, analyst, Angel Broking Pvt. Ltd, the company’s operating performance will improve as its new scooter, Jupiter, has been well accepted by the market and could add to sales momentum. The firm has also planned launches in the motorcycle segment. This is encouraging given that the two-wheeler market is seeing a contraction and leaders like Bajaj Auto Ltd have lost ground, albeit on a larger base.
The Street seems to have taken this into cognizance—the stock, which often underperformed benchmark indices, has rallied in the last three to four months. Note that the TVS stock has risen by 62% in the past one year, which beats the 16% rise in Hero MotoCorp Ltd and 6% contraction in Bajaj Auto shares.
That said, costs have been rising, which, in turn, is seen in the flat operating margin at 6%, in spite of higher realization.
The management’s positive outlook could also help the stock. The firm said cash flows would turn positive in the current quarter and that it could also cut debt in fiscal 2015. These developments would boost TVS’s net profit. The December quarter’s net profit improved 31.2% from the year-ago period to ₹ 69 crore, in line with Bloomberg’s consensus estimates.
TVS shares trade at a fair valuation of about 11 times one-year forward estimated earnings per share for fiscal 2015.
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