Expensive valuations; retain Sell
* Q2FY21 revenue grew 6% yoy to Rs46.1bn (est.: Rs46.1bn) despite a 2% fall in volumes due to an 8% increase in realizations. Over FY20-23E, we expect improvement in domestic and overseas segments with a volume CAGR of 5% and 8%, respectively.
* OPM at 9.3% was above the estimate of 8.6% on lower other expenses. In the near term, we expect some pressure due to low export incentives and high input, employee and marketing costs. However, led by better scale and cost controls, we expect 70bps expansion over FY20-23E.
* Festive retails have commenced on a positive note with marginal growth during initial nine days. In addition, the demand outlook has improved across most overseas markets. We increase volume growth forecast to a 5% CAGR over FY20-23E (from 4%).
* The stock trades at FY22/23E core P/E of 28x/21x, which is expensive in comparison to 15-21x for larger peers on FY22E. We retain UW stance in EAP and Sell rating, with a revised TP of Rs398, based on 20x FY23E EPS (Sep’22E earlier).
What we like? Festive retails in initial nine days witnessed marginal growth, supported by better demand in the premium segment. In addition, the demand outlook has improved in most overseas markets due to pent-up demand and stable oil prices/exchange rates.
What we did not like? Factors such as lower export incentives and higher input, employee and marketing costs may adversely impact margins in the near term. TVSL is focusing on cost reduction efforts and price hikes to partially offset the impact.
OPM above estimates: Revenue grew 6% yoy to Rs46.1bn, in line estimates of Rs46.1bn. Volume fell 2% to 867,834 units, while realization grew 8% to Rs53,069/unit. EBITDA margin expanded 60bps to 9.3%, above estimates of 8.6%, due to a fall of 8%/20% in employee cost/other expenses. Overall, adj. PAT fell 1% to Rs2bn, below estimates of Rs2.1bn, owing to higher depreciation.
Retain Sell: We estimate revenue/earnings CAGR of 9%/14% over FY20-23. Valuations are expensive, with core P/E at 28x/21x on FY22/23E, in comparison to 15-21x for larger peers on FY22E. Retain UW stance in EAP and Sell rating with a revised TP of Rs398, based on 20x FY23E EPS (Sep’22E earlier) and value of TVS Credit Services at Rs17/share. Key upside risks are higher-than-expected demand in key geographies, reduction in competition intensity, decrease in commodity prices and benign currency movements.
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