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Company Profile
TVS Motor Company (TVS-M) one of the largest two wheeler manufacturers in India,
started manufacturing in 1979. TVS-M currently manufactures a range of two wheelers
namely motorcycles, scooters, scooterettes and mopeds in its plants located at Hosur (in
Tamilnadu) and at Mysore (in Karnataka). Our subsidiary M/s Lakshmi Auto Components
Ltd (LAC), the Engine component division has been merged with TVS-M, so the annual
report of 2003-04 comprises of both. Our market share is around 22 %. TVS-M is also the
market leader in the moped segment enjoying a share of 69 %. The combined capacity as
of march 04 is more than 1.6 million vehicles TVS-M also exports its bikes as SKDs and
CKDs to African and South American countries and also to Bangladesh and Srilanka.
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Historical Comparison
1. Current Ratio
2004-
2005
2005-
2006
2006-
2007
Average 2007-
2008Current Asset
Inventories 233.23 357.90 396.56 329.23 405.38
Sundry Debtors 39.56 58.90 111.40 69.95 87.86
Cash and Bank 73.87 24.35 86.56 61.59 3.73
Short TermInvestments
61.89 103.22 103.77 89.63 72.17
Other C.A. 0.29 0.30 0.30 0.30 0.30
Loans 164.70 214.88 227.58 202.39 277.52
573.54 759.55 926.17 753.09 846.96
Current Liability
Current Liab. 452.19 524.46 577.02 517.89 505.76
Provisions 55.61 62.44 49.73 55.93 60.99
507.80 586.90 626.75 573.82 566.75
Current Ratio 1.13 1.29 1.48 1.30 1.49 0.19
Notes: The Short Term part of the Investments have been taken as Current Assets
The current ratio of the company has improved by .19 over the last three years average of 1.30.
Thus we will give it a score of2.
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2. TOL/TNW
TOL
Secured Loan 175.0
1
308.61 506.16 329.93 452.68
Unsecured Loan 11.83 76.43 127.40 71.89 312.66
Current Liability 452.1
9
524.46 577.02 517.89 505.76
Differed Tax Lib 148.5
1
149.01 159.01 152.18 154.90
Provisions 41.35 48.19 46.17 45.24 44.36
828.89
1106.70
1415.76
1117.12
1470.36
TNW
Share capital 23.75 23.75 23.75 23.75 23.75
Reserves and
Surplus
655.0
8
742.37 785.52 727.66 797.83
678.8
3
766.12 809.27 751.41 821.58
TOL/TNW Ratio 1.22 1.44 1.75 1.47 1.79 0.32
Total outsiders liability by Total Net worth has worsened by .32 over the last three years average.
So we have given a score of0.
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3. PAT/Net Sales
Ratio
PAT 183.32 160.71 102.10 148.71 60.86
Net Sales 2875.9
1
3234.9
6
3854.9
6
3321.9
4
3219.5
0
PAT/Net Sales
Ratio
0.06 0.05 0.03 0.05 0.02 -0.03
PAT by net sales ration has gone down by0 .03 from the last three years average. So we score it
as 0.
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Total liabilities / Total Net
worth
1.79 2.09 1.72 2.19
PAT/Net Sales 1.89 0.13 0.09 0.08
Inventory + Receivables/
Net Sales
55.15 145.21 18.09 77.15
PBDIT/Interest (times) 60.34 360.23 61.28 142.69
ROCE 0.04 0.03 0.97 0.35
Current Ratio 2.00
Total liabilities / Total Net
worth
2.00
PAT/Net Sales 2.00
Inventory + Receivables/ Net
Sales
2.00
Total Score 8.00
The score clearly shows that although TVS Motors is doing badly compared to its historical
performance, its far better than the two other major players in the Two wheeler industry.
Financial Risk Rating (WorkingCapital)
PBDIT/Interest
2007-2008
PBT 35.37Interest 2.19
Depreciation 94.59
PBDIT 132.15
PBDIT/Interest Ratio 60.34246575
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ROCE
PBIT 37.56
Total Asset 1,382.01Current Lib & Prov. 566.75
Capital employed 815.26
ROCE Ratio 4.61%
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Financial Risk
Rating
2007-2008 Score Score
Current ratio 1.49 4 5 20
TOL/TNW 1.79 5 5 25
PBDIT/Interest 60.34 5 2 10
PAT/Net Sales 1.89% 0 2 0
ROCE 4.61% 0 2 0
(Inv.+Rec.)/Daily
Sales
55.15 5 4 20
Total Score 20 75 37.5
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R&J Model
Financial Parameter
Score 1 0 -1
Current ratio Greater than
average plus
0.03
Equal to average plus or
minus a variation of
0.03
Less than
average minus
0.03TOL/TNW Less than
average minus
0.20
Equal to average plus or
minus a variation of
0.20
Greater than
the average
plus 0.20PAT/Net Sales Greater than
average plus
0.50
Equal to average plus or
minus a variation of
0.50
less than
average minus
0.50(Inv. + Rec.)/Daily sales Less than
average minus
20 days
Equal to average plus or
minus a variation of 20
Days
Greater than
the average
plus 20 days
We are suggesting a more stringent rating system in which if the company go below the average
of last three years performance its given a negative score which will negate a positive score in
some other criterion.
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Current ratio 1
TOL/TNW -1PAT/Net Sales 0
(Inv. + Rec.)/Daily sales 0
Total Score 0
As per our new rating system the score of TVS Motors in Historical comparison is Zero.
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Book Value/ Market value
Share Capital 23,75,00,000
Reserves and Surplus 7,97,83,00,000
Book Value 8,21,58,00,000
No. Of Equity shares 23,75,43,557
Book Value 34.59
Share price as on 5/12/08 24.15
Book Value/Market Value 1.43
The market value of TVS Motors as per December 5, 2008 price (Rs.24.15) is below its book
value. Thus it is underpriced. The book value is 1.43 times of the market value.
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Contingent liability
Contingent Liabilities not
provided for
167.53
Liabilities contested but not
provided for
74.19
Total CL 241.72
CL/TNW 0.29
Since its above 10% of the Total Net Worth we give a score of -10
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INDUSTRY RISK
The industry risk for TVS Motors, is measured by analysing where the company stands on the
following parameters. These parameters are Competition & Market Risk, Industry Cyclicity,
Regulatory Risk, Technology and quality control, User Profile, and Inputs Profile.
Based on the companies standing on the above mentioned parameters, corresponding scores have
been assigned to the company.
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Sl.
No.
Measure of
ScoreScore
Reasons for score
1
C
ompe
tition
&
Mark
et
Risk
3
TVS Motors operates in a highly competitive market, driven
largely by aggressive Japanese motorcycle makers, along with a
large Indian Player, Hero Honda. The overall demand of
motorcycles will be dampened by the current financial crisis. With
demand slowing down all over the globe, and most of the first
world facing recession, Indian Financial institutions are also going
slow on the origination of new loans. Having said that the
company has seen a dip in its sales in the economy segment and
therefore is under pressure.
Typically the two wheeler segment is a high risk loan segment and
hence most banks have either gone slow on two wheeler loans on
stopped them altogether. Hence growth in the rural and semi urban
markets has come to a standstill.
The industry has unique barriers to entry, in that beyond thebuilding of the plant the company will have to set up facilities to
constantly maintain contact with the customer. These will include
sales and marketing outlets, service centres and the like.
The company is among the top 3 players in the market.
The company also has a steady brand that has been around in thecountry for a long time. It has facilities abroad that are coming on
stream, which will make it less susceptible to Indian demand. The
company has also received multiple awards for its new product
launches TVS Flame & TVS Apache.
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2
Indus
try
Cycli
cality
3
The slowdown in the 1st world is having an impact on the
consumption patterns in India. With credit drying up, the
aspirational buyers appetite to take on debt and consume is being
curtailed.
The boom period preceding the current slowdown in demand has
led to a situation of overcapacity among most producers. This is
having an impact on costs while operating in this phase.
Over the long term, the industry is poised for a recovery. As the
disposable income of Indians increase the appetite to consume will
also rise, leading to higher demand for two wheelers in the long
term. The current slowdown is expected to last for another 18-22
months and auto industry will be affected severely during this
time. The severity of the situation may be seen by the fact that GM
and Ford are now asking for a government bailout to remain
functional. In India also, Sundaram Fasteners competitors have
had to shut shop, while Ashok Leyland is operating its factories for
only 2 days a week.
Typically the segment has grown by around 15% YOY, but this
year that will not be the case and slow growth will continue to
plague the industry.
The size of the large players ensures that they are capable of
weathering industry cycles and hence are not expected to go
bankrupt in the current scenario.
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3
Regu
lator
y
Risk
4
Motorcycle industry in India is seen as the common mans
consumption space and hence is not susceptible to negative
government cues. On the whole the motorcycle space is not very
susceptible to government policy changes directly, but they are
depending on fuel price decisions. In a rising oil price scenario,
the demand may dampen. To combat this, the company has entered
the electric two wheeler space.
The space is also dependent on RBI outlook on liquidity situation
in the country. If the liquidity in the market dries up, the demand
will also fall.
Although the company, spends roughly 2.6% of revenue on R&D,
and depends on 400 engineers working in this space, it has not
experienced a skilled labour crunch. The company operates in a
highly industrialized state and given that there are an abundance of
training institutes and engineering colleges around, the company
does not experience difficult in finding skilled labour.
The companys relations with labour unions are good and it has
not experience any production stoppages.
Environment and Pollution clearances are also in order. There also
a huge R&D spends on more efficient engines.
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4
Tech
nolo
gy
and
Quali
ty
Cont
rol
4
The company aggressively pursues innovation and quality
enhancements. It has always enjoyed 100 % of
employees in Total Quality Management and cost savings
by improved processes have averaged 3 crores every
year.
The expenditure on Research and Development amounts
to 2.6% of revenue on average, which ensures that the
company always has the capability to roll out new
products in order to keep the demand stimulated. An
example of this would the launch of TVS StaR (sport &
auto start variants) at a time when the industry was
experiencing a slowdown. This helped TVS gain a larger
market share in the economy segment.
The company has also pursued quality enhancements
and accessory development for its premium and sports
line of motorcycles. TVS Flame and TVS Apache have won
awards for design and other functional breakthroughs.
The company recognises that it will constantly have to
work on the design of its motorcycles so that they are
always on the cutting edge, thereby winning the favour of
the discerning customer.
There are technology R&D tie-ups with global agencies.
This ensures that the companys engineers are alwaysperforming. There is also a culture within the company to
publish research articles in global periodicals. The
company has constantly applied for patents over the
years.
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5
User
Profi
le
3.5
The users of the company have a wide array of choice ahead of
them. And also they are broadly classified into the following
categories, economy, premium and luxury. For each of these
segments there needs to be a different value proposition. The
company by and large has maintained this parity and continues to
be competitive across all segments.
The innovations that the company has driven into its product
portfolio are driven by patents and the companys R&D effort
ensures that there is a flow of innovation.
The company has a wide area of operation, and global presence
also.
The companys investment in TQM and QCs has ensured that
there is a history of good product quality.
The growth of middle class in the country has resulted in fast
changing lifestyles in urban and to some extent rural centres. This
opens a huge market for lifestyle vehicles.
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6
Input
s
Profi
le
2.5
The company is dependent on fuel price and steel price
movements when it comes to its raw material acquisition costs.
The cost of raw materials depends on huge demand for
consumption by other global economies. However given the
dampening global scenario, commodity prices globally have also
dampened.
Fuel prices have also fallen from their highs hence reducing the
cost of moving raw material.
The company has been pursuing the use of new components in
order to reduce its dependence on steel.
TOTAL
SCORE20
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MANAGEMENT RISK
Parameters such as Integrity, Expertise competence/commitment, Track Record, Structure &
Systems & Capital Market Perceptions are taken into account when looking to ascertain
management risk.
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Sl.
No
.
Measure
of Score
Score Reasons for score
1 Inte
grit
y
4 The company and the group in general, are perceived with the virtuesof professionalism, high quality processes and integrity.
The company has shown good corporate governance disclosures, and
is extremely transparent about its disclosures when it comes to the
board of directors as well as the functioning of the company.
2 E
xper
tise,
Co
mpe
tenc
e or
com
mit
ment
4 The company has a very competent management, and is also backedby the management expertise of the TVS Group. This ensures that thecompany always has the best management talent on hand.
The company is committed to quality and continuous process
innovation. This is seen by the companys commitment to TQM
implementation at its assembly lines.
The R&D is focussed on delivering the most cutting edge of products
be that in terms of quality or in terms of design innovation.
The company has successfully competed with Japanese rivals, still
keeping itself at the top 3 position in India.
The company is looking at future products in line with changingsocio economic scenarios by looking at more fuel efficient engines,
and electric vehicles. Although these products may represent a huge
R&D cost at present, the payoff in the long term is expected to be
huge.
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3 Trac
k
Record
3.5 Number 3 player in the Indian motorcycle space.
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4 Stru
ctur
e
and
Syst
ems
3 Statutory requirements are met.
World class management and governance processes to be instituted
through the new structure
Management is professional and distinct lines of command exist.
Company has ensured that its processes are along the line of the best
in industry, ensuring that information is always readily available
enhancing decision making.
Constant supply chain process enhancement takes is encouraged in
the company.
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5 C
apit
al
Mar
ket
Perc
epti
ons
2 The company share capital consists of 250000000 shares of Re. 1 /-each.
Out of the above 23,10,00,000 equity shares of Re. 1/- each were
allotted for consideration other than cash to the shareholders of
erstwhile transferor company viz. Sundaram Auto Engineers (India)
Limited, Chennai
65,42,857 Equity shares of Re. 1/- each allotted to the shareholders of
amalgamated company viz. Lakshmi Auto Components Limited,
Chennai
The company is perceived as one with high integrity and good values
in the capital market space. Having existed for a long time in India is
enjoys a good recall among investors as well.
EPS has declined due to adverse market conditions.But future
outlook remains positive.TOTAL
SCORE
16.5
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Compiled Score card for TVS MotorsHistorical Comparison 1
Industrial Comparison 8Financial Risk Rating 37.5Contingent Liability -10Industry Risk 20Management Risk 8.25Grant Total Score 64.75