TVS SRICHAKRA------buy      CMP—330 .

TVS SRICHAKRA is the market leader in two wheeler tyres. It’s having a management which cannot be questioned. There are only majorly three companies manufacturing two
Wheeler tyres viz TVS, MRF, CEAT of which the capacity of TVS is the highest. They will be rolling out 3 crores tyre and around same number of tubes from around 1.2 crores of the last financial. Thus their capacity has almost tripled in this financial.

They did a topline of around 700 crores last year and as their capacity has tripled then this year they should be doing somewhere around 1500 crores (taking into considerations some bottlenecks initially) and next year around 1800 crores. Selling should not be any problem as it is the market leader in the sector and it is the only company which will have such huge production. Also they have contracts with Bajaj, Hero Honda for tyres in their new vehicle. They sell tyres for new vehicle in the brand name Eurogrip. With all time high sales done by all these two wheeler manufacturing companies since two years, the vehicles should be coming for tyre replacement latter this year or early next year i.e. in the third or the fourth quarter of this financial. With the capex already in place they should be able to meet up with the demand which is expected to come.

This can be seen that there is huge demand for tyres as all tyre manufacturers are passing the increasing cost of rubber which is their major raw material to the customers by hiking the prices of tyres regularly since past one year. The prices of tyres are moving up in tandem with the prices of rubber. This can be confirmed by any tyre dealer. So one can imagine that, demand for new vehicles, old vehicles (two-year old) coming for replacement, also older vehicles which are again huge in number coming for replacement regularly. Also there is practically no foreign player in the two wheeler tyre market. So TVS is totally ready to take advantage of the demand coming and going to come.
One important thing which favors TVS is that it also gives tyres solely to TVS motors which is the third largest two wheeler manufacturer in the country after Hero Honda and Bajaj. The models Jive and Wego of TVS motors are already finding good response in the market. So there should not be any problems for the company to sell its extra added capacity.
Their new capacity seems to have come up in Uttaranchal where they will be getting some tax benefits and also to cater to northern markets more easily and efficiently making its presence throughout the country.

It announced a dividend of Rupees 10/- giving it a yield of around 3.5%, and also it is a regular dividend payer.









Downside of the stock is insulated as the total number of shares of the company is only 76.6 lakhs of which around 60% is owned by the management and HNIs.
The market cap for the stock is around 210 crores. A market leader having capex done, which did a topline of 700 crores and shall be doing a topline of 1500 crores, the market cap seems too less. It can easily have a market cap of around 800 to 1000 crores in two years. So the stock can easily grow 4 times from here in two years. The debt in the books is around 150 crores which is nothing with the top line growth the company is targeting.

Last year the net profit margin was around 4.25%, we assume that with the increase in topline the net profit margin should improve with around 75 basis points at least making it to 5%. So the net profit for the year can be around 65 to 70 crores (conservatively) giving an Eps of around 80. If we give a pe of say 7 to the sector stock can go to around 560 levels this year. Still it should have more room for upside from there. Long term investors can continue to hold from there too.

Practically there seems to be no risk but still if the production does not match the capacity it is having due to any problems or bottlenecks then the targets can falter this year but they can be achievable next year. If the raw material prices still become dearer and if the company is not able to pass the prices to the consumers then margins can be hit. But this possibility seems very less.

Happy investing……

Anshuman Mohta.

the company is the market leader in two and three wheelers. Yes the net profit margin has gone down mainly due to high rubber prices, but they are able to pass on the prices of rubber to a major extent to tyres, this is the command of tyre companies in the current market scenario. Due to good rains this year they are expecting rubber prices to soften , but the prices of tyres willnot be rolled back, the only reason is huge demand and and restrictined production. For this reason their expansion is complete which is three times the production. The only reason i think their margin has softened because their new plant has just comissioned and their other expenses and depreciation has increased which should settle down over a period of time as the management of tvs grop is not questionable. And other things will be clarified in the agm

and the main thing is that with capex done, market leader , great management available at just around 250 crs. i bought some, here is opportunity for all.

Net Profit Margin- 4.26 % and Total Debt- 175 Cr (Ref Edelweiss) for a company having Mkt Cap of 260 Cr company worries me.Rest seems to be good...
May be experts can throw light on this. I think I recently saw some advt on TV as well !