Our analysis of the state-wise and product segment-wise two-wheeler (2W) sales for the last four years up to Q3FY14 indicates initial signs of demand recovery. October-February sales grew 9.1% against 3.5%/3.2% in H1FY14/FY13. The weak performing south region too has stabilised, registering 2.9% growth in Q3 against 10.3% decline in H1.
Scooter volumes grew 18%, outpacing motorcycle volume growth across regions. The share of scooters has increased from 21.3% in FY13 to 23.7% in 9MFY14. Post the launch of Jupiter in September 2013, TVSL?s market share in scooters has increased.
In non-south markets, growth in moped volumes has remained strong at 18%. In Uttar Pradesh, the largest non-south market for mopeds, volumes grew 20%. TVSL is the only company currently operating in the mopeds segment in India.
Recovery in south markets augurs well for TVSL, which derives 56% of its volumes from this region. Over the next 12-18 months, TVSL plans to launch multiple products across segments to reinforce its product portfolio. We expect EPS to grow at a CAGR of 34% over FY14-16. Maintain ?buy?, with a target price of Rs 120 (12x FY16e EPS).
Tamil Nadu drags South performance, but recovery signs visible: Consumer sentiment in the south, particularly Tamil Nadu, has been weak over the last couple of years due to drought and major power shortage, which impacted industrial activity. However, with improved power availability and relatively better monsoon in FY14, there are signs of recovery in Tamil Nadu ? 2W volumes declined 9.3% in Q3 after a 30% decline in Q2 and 18% decline in Q1. In Karnataka and Andhra Pradesh, 2W volumes grew 21% and 12.9%, respectively in Q3FY14.
Jupiter helps TVSL gain share: With Jupiter launch, TVSL has the complete range of scooters, with products in every sub-segment (women, unisex, men). Demand for Jupiter remains strong, with a waiting period across major markets. Post the launch of its 110cc scooter, Jupiter, TVSL?s market share in scooters has increased in non-south markets. Launch in the south market in Q4FY14 would further boost its share. Upcoming launch of Scooty Zest in April 2014 (110cc engine, currently offering 90cc variant) will further strengthen TVSL?s positioning in the women?s scooter space. We expect TVSL?s scooter volumes to register a CAGR of 19.5% over FY14-16, driven by product actions, capacity ramp-up and robust scooter industry growth.
Reinforcing strong product pipeline: Limited product actions were the key reason for TVSL?s significant market share loss from 22.3% in FY03 to 12% in H1FY14. Unlike the past, TVSL has a strong product pipeline and plans to launch a product every quarter, including two new executive motorcycles and a diesel three-wheeler.
Success of new launches could yield disproportionate gains: Given its wide distribution network (second to Hero MotoCorp) and low base, success of any one or two launches could drive disproportionate gains in market share and volumes for TVSL.
Sale of non-core investments + healthy cash from operations = net cash: Healthy cash from operations (FCF CAGR?free cash flow annual growth—of 25% over FY14-16) coupled with sale of non-core investments should transform TVSL into a net cash company by FY16. TVSL had net debt of Rs 6.2 billion in FY13. It recently sold its majority stake in its Energy venture, reducing consolidated debt by Rs 2.6 billion.
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