Underperform rating on TVS Motors, target Rs 45

TVS Motors faces stronger than anticipated headwinds of slowdown and competitive pressures. We, therefore, sharply cut our standalone EPS forecast by 35-38%, which mainly reflects downward revision to volumes. Consequently, we lower our price objective to R45 (earlier R53) based on the same 10x FY13E standalone P/E. We also expect interim results to disappoint, especially on its Indonesian subsidiary, implying potential downside to our consolidated forecasts. We maintain our underperform rating on TVS Motors. TVS Motors' two-wheelers grew just 7.3% last fiscal and, we believe, the outlook has worsened. We, therefore, cut volumes by 9-12% over FY13E-14E, pulling down growth estimates to 3-4% driven by increased competition in scooters post expansion of Honda and new launch of Hero; and delay in launch of Victor commuter bike. This is despite reasonable prospects in mopeds, which is likely to benefit due to downtrading by customers in an inflationary environment. TVS Motors' three-wheeler sale to the domestic regulated centre declined 37% last year to ~14,000 units, well below our expectations of 20,000. We expect volumes to remain muted, mainly due to lack of new permit issuances. Our revised assumptions suggest flattish sale, compared to 20-40% growth earlier. TVS Motors’ derives ~12% of sale from exports, which grew 30% CAGR over the past two years. We, however, expect this segment to reverse trends due to import curbs in key destinations like Sri Lanka; and new competition, mainly in the African markets. We slash our volume assumptions to reflect this. Our price objective of R45 is based on a sum of stand-alone business valued at 10x FY13E P/E (same as earlier) and at 30% discount to imputed multiple of peers, on lower margins and return ratios; and Nil value for the Indonesian subsidiary, which is currently operating at losses. At our PO, the stock would trade at 11.2x consolidated FY13E P/E, still slightly ahead of historic averages.