TVS Srichakra-Buy TVS Srichakra; target of Rs 468: Angel Broking

Angel Broking is bullish on TVS Srichakra (TVSSL) and has recommended buy rating on the stock with a target of Rs 468 in its September 21, 2011 research report.

“TVS Srichakra Ltd. (TVSSL), a part of TVS Group, is a leading manufacturer of two and three-wheeler tyres with a 25% market share. Two-wheeler demand growth (~16% yoy YTD) continues to be insulated from the current slowdown in the automobile sector. Given this growth and increased installed capacity of automotive tyres by 170% to 3.3cr units over FY2009-11, TVSSL’s volume is expected to grow at a CAGR of 11% over FY2011-13E. Also, the promoters have increased their stake in the company from 39.5% in June 2007 to 44.4% in June 2011, demonstrating their confidence in the company’s future growth outlook. We recommend Buy on TVSSL with a target price of Rs 468, based on a target PE of 5x for FY2013E.”

“Two-wheeler domestic sales have witnessed growth of ~16% yoy YTD. Being into the manufacturing of two and three-wheeler tyres, TVSSL is not much exposed to the risks of demand slowdown, as the two-wheeler segment continues to be insulated from the current slowdown in the automobile sector and is expected to grow at a CAGR of 13% over FY2011-13E. Backed by this and increased capacity utilisation, we expect the company’s volume to grow at a CAGR of 11% over FY2011-13. TVSSL has increased its installed capacity of automotive tyres by 170% to 3.3cr units over FY2009-11. This capacity increase is expected to drive the operating leverage for the company. However, capacity utilisation is only 48% (as of March 2011), which is expected to increase to 59% over FY2011–13E. The company’s promoters have increased their share from 39.5% in June 2007 to 44.4% in June 2011. This consistent increase in their share in the company is a good signal for investors, as it demonstrates the confidence of promoters in the company’s future growth outlook.”

“At Rs 355, the stock is trading at 4.8x and 3.8x its FY2012E and FY2013E earnings, respectively. We expect the company’s revenue and profit to witness CAGRs of 22% and 35%, respectively, on the back of the expected increase in capacity utilisation, which will result in an 11% CAGR in volumes over FY2011–13E. We recommend Buy on TVSSL with a target PE of 5x for FY2013E and a target price of Rs 468 for an investment period of 12 months,” says Angel Broking research report.