TVS Motors 2020 Annual Report Takeaways! (including it’s holding company)

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  • Sales of 30.9 lakh units of two wheelers in FY20.
    • Transitioned into BS-VI emission norms, well ahead of the competition and successfully positioned the entire portfolio with BS-VI product line up by January. (Gained market share in the 6 months but lost it due to early conversion to BS6: costlier product)
  • 2W Industry declined by 17.7% in volumes. (TVS’s degrowth by 25%)
    • Impacted by on-road price increase in the domestic market due to increase in motor vehicle insurance.
    • Mandatory safety norms.
    • Credit shortage from NBFC crisis. 
    • Tepid demand due to lower GDP growth estimated at 4.7%.
  • Exports of two-wheelers in FY20 at 6.79 lakh units with a growth of 9.2% YoY.
    • Stable price of crude oil and continued growth in Africa propelled the growth of exports.
  • Three-wheeler sales grew by 11% in 2019-20.
    • Good acceptance of the product from the international customer base.
  •  Sales revenue of spare parts grew by 6%.
  • Scooter market share: 32% | Motorcycle market share: 64.4% (premium segment market share: 9.3%)
  • The products & variants launched this year: Jupiter Grande, Apache, Radeon,  iQUBE (foray into electric scooter market), etc.
  • Macro trends:
    • Broken consumer sentiment due to the weak economic situation.
    • Social distancing norms could increase customer preference for personal mobility. WFH effect will remain subdued as the majority of India’s population can’t afford to do their work at home.
    • The favourable reservoir levels, good rabi output and the possibility of normal monsoon may support agriculture growth. (Majority of 2W sales)
  • Acquired Norton Motorcycles, in an all-cash transaction for a consideration of ~ Rs 150 crs through one of the Company’s overseas subsidiaries.
  • Strategic partnership with BMW Motorrad to develop and manufacture sub-500cc bikes both for domestic and global markets. 
    • Produced over 72,000 units of BMW 310cc motorcycle till date.
  • Pursued process innovation, value engineering, alternate sourcing and localization to reduce material costs.
    • Led to increase in EBITDA margins even in this scenario.
  • Several technology and product development projects in R&D are closely linked with the racing technology development, leveraging the decades of racing experience (The reason behind why the automobile companies across the world lose billions each year on their racing teams?) 
  • A load of subsidiaries: Imp. updates
    • Have invested a sum of ~Rs 142 crs in the ordinary shares of TVS Motor (Singapore) Pte Limited: the subsidiary focused on research in Automotive & Fintech industries.
    • Through their Housing finance subsidiary & associate company Emerald Haven which has past experience in RE business: launches multiple projects under the TVS brand.
    • TVS credit services (CS): Financial Power House: 2W, MFI, ARC, Housing.
      • Overall disbursements registered at Rs 7,585 crs.
      • TVS has invested a sum of Rs 45 crs in the Equity capital of TVS CS.
      • Lack of sufficient provisions this year in secured & unsecured loans even after a significant jump in doubtful assets:
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  • Promoters hold 57.4% in the co through their listed subsidiary: Sundaram Clayton.
  • 8 of the top 10 institutional investors increased their stake.
  • Key management personnel had a decrease in salary, ~15-20%.
    • Other than managers, employees had an increase of 11% in salary. 
    • Total permanent employees ~ 5133.
  • Fx risk due to huge exports & borrowings: Hedges most of its net currency exposure.
  • In the standalone business all about 2W, 3W & parts: Great operating cash flows (Rs 1393crs)  & Free cash flows (Rs 700 crs)
    • Using it’s cash & increased debt to diversify into financial services & acquisitions.

Bonus material: AR of Sundaram Clayton (Holding co. of TVS Motor-57.40% )

  • Greater than 68% Holding company discount as of June 8th without taking the Auto ancillaries standalone business. 
    • Supplies aluminum castings to CV (58% of revenue), PV (24%) & 2W (18%) OEMs.
  • A dividend of Rs 31/ share (2% yield): 
  • High Capital Intensive Business: debt/equity ~1.04 in the standalone entity. 
  • Sales decrease largely due to a significant contraction in auto sales. High dependence (>25%) on the TVS group for sales.
  • Auto ancillaries that export to US/EU economies also had a significant impact on their order book due to lack of sales in the second half of FY20.
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  • Lack of pricing power due to high competition for the upcoming decrease in utilization: Margins will contract further. (though managed it’s cash flows very well: FCF of Rs 150 crs for the standalone entity)
    • Protection against volatility in aluminium prices as contracts are linked.
  • The Indian commercial vehicle industry is a strong indicator of the economic activity in the country and has a strong correlation with the agricultural growth, infrastructure development and the mining industry: In short, if one believes in India’s growth story, believe in a comeback.
  • Expenditure on R&D – Rs 7.64 crs. (quite low for a company with Rs 1300 crs turnover)
  • 75% promoter shareholding, 6 of the top 10 institutional investors increased stake.
  • Fx risk: Has a forex hedging policy and covers are appropriately taken to cover the currency risk.

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