Business Valuation

CIA 1.2

TVS Motor Company Ltd.

Submitted by
Shakti V K (1920526)
Sejal Nagori (1920646)
Sanjay Kumar (1920674)

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 TABLE OF CONTENTS

Sr No. Topic Pg no. .

1 Introduction 1

2 Previous year data 2

3 Analyses 5

4 Strategies of Future 9

5 Assumptions 11

6 Forecast 12

7 Conclusion 16

8 References 17

9 Annexure 18

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Introduction to TVS :

The TVS group, right from its foundation, deem to its destiny of growth, success, and perpetuity
in the industry. The method and integrity of conducting business is what sets TVS apart from its
competitors.

Present day, the TVS Group is one of India's leading suppliers of automotive components, with
over 90 Companies under its umbrella and a revenue of around INR. 59400 Cr in 2017-18. The
first four companies in India to have won the coveted Deming Prize are from the TVS Group.
Today, one of the largest companies under TVS Groups, The TVS motors with a revenue of
19,420 Cr in Mar 2021. With many companies in hand TVS group focuses more on its core
business of motorcycle manufacturing and assembling. As of Dec 2020 TVS motor company
owns around 14.35% of market share in the motorcycle manufacturing industry followed by 2
other companies.

The product mix of the company is as follows :

● Automobile - 2 & 3 wheelers

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 ● Accessories and parts
● Sale of services
● Other operating revenues

Currently the company has a production capacity of 4 million 2 wheeler vehicles and 1,20,000 3
wheeler annually to meet the market demand.

Previous 5 years Data

BALANCE SHEET OF TVS MOTOR COMPANY (in Rs. Cr.)

PARTICULARS Mar 21 Mar 20 Mar 19 Mar 18 Mar 17

12 mths 12 mths 12 mths 12 mths 12 mths

EQUITIES AND
LIABILITIES

SHAREHOLDER'S FUNDS

Equity Share Capital 47.51 47.51 47.51 47.51 47.51

TOTAL SHARE CAPITAL 47.51 47.51 47.51 47.51 47.51

Reserves and Surplus 4,123.44 3,570.58 3,299.81 2,832.91 2,360.82

TOTAL RESERVES AND 4,123.44 3,570.58 3,299.81 2,832.91 2,360.82

SURPLUS

TOTAL SHAREHOLDERS 4,170.95 3,618.09 3,347.32 2,880.42 2,408.33

FUNDS

NON-CURRENT
LIABILITIES

Long Term Borrowings 1,035.58 904.63 709.12 317.62 468.76

Deferred Tax Liabilities [Net] 195.45 158.05 212.63 148.17 125.7

Other Long Term Liabilities 93.76 85.79 0 0 0

Long Term Provisions 116.3 92.6 58.61 53.76 50.8

TOTAL NON-CURRENT 1,441.09 1,241.07 980.36 519.55 645.26

LIABILITIES

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CURRENT LIABILITIES

Short Term Borrowings 0 1,070.00 668.82 719.35 616.38

Trade Payables 3,921.60 2,886.39 2,923.90 2,517.99 1,859.36

Other Current Liabilities 587.57 454.12 389.31 480.14 312.47

Short Term Provisions 76.24 83.65 59.65 62.02 62.87

TOTAL CURRENT 4,585.41 4,494.16 4,041.68 3,779.50 2,851.08

LIABILITIES

TOTAL CAPITAL AND 10,197.45 9,353.32 8,369.36 7,179.47 5,904.67

LIABILITIES

ASSETS

NON-CURRENT ASSETS

Tangible Assets 2,745.54 2,723.21 2,526.29 2,315.46 1,930.64

Intangible Assets 264.81 176.73 53.02 56.41 53.23

Capital Work-In-Progress 112.56 126.56 116.64 91.74 62.28

Other Assets 0 0 0 0 0

FIXED ASSETS 3,289.01 3,185.37 2,836.54 2,503.00 2,046.15

Non-Current Investments 3,314.52 2,605.88 2,300.67 2,035.38 1,587.90

Deferred Tax Assets [Net] 0 0 0 0 0

Long Term Loans And 0 0 0 0 0

Advances

Other Non-Current Assets 147.13 340.48 77.25 62.98 83.73

TOTAL NON-CURRENT 6,750.66 6,131.73 5,214.46 4,601.36 3,717.78

ASSETS

CURRENT ASSETS

Current Investments 0 0 0 0 0

Inventories 1,151.81 1,038.93 1,175.94 964.39 966.95

Trade Receivables 869.98 1,281.36 1,414.14 968.37 723.77

Cash And Cash Equivalents 929.81 419.17 43.86 10.9 8.51

Short Term Loans And 0 0 0 0 0

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Advances

OtherCurrentAssets 495.19 482.13 520.96 634.45 487.66

TOTAL CURRENT ASSETS 3,446.79 3,221.59 3,154.90 2,578.11 2,186.89

TOTAL ASSETS 10,197.45 9,353.32 8,369.36 7,179.47 5,904.67

CASH FLOW OF TVS MOTOR COMPANY (in Rs. Cr.)

PARTICULARS Mar 21 Mar 20 Mar 19 Mar 18 Mar 17

12 mths 12 mths 12 mths 12 mths 12 mths

NET PROFIT/LOSS 826.24 754.41 960.96 878.64 698.68

BEFORE
EXTRAORDINARY ITEMS
AND TAX

Net CashFlow From 2,560.88 1,393.62 1,097.78 1,251.57 723.93

Operating Activities

Net Cash Used In Investing -920.61 -1,288.85 -1,002.28 -1,085.61 -748.12

Activities

Net Cash Used From -1,195.59 270.51 81.13 -74.74 -72.7

Financing Activities

Foreign Exchange Gains / 0 0 0 0 0

Losses

Adjustments On 0 0 0 0 0
Amalgamation Merger
Demerger Others

NET INC/DEC IN CASH 444.68 375.28 176.63 91.22 -96.89

AND CASH EQUIVALENTS

Cash And Cash Equivalents 414.3 39.02 -137.62 -228.84 -131.95

Begin of Year

Cash And Cash Equivalents 858.98 414.3 39.01 -137.62 -228.84

End Of Year

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Analyses
From the information gathered about the financing and investment strategies of TVS in the year
2016-17, it is clear that the company is concerned with reducing its debt element in the capital
structure and at the same time increasing its investments to ensure adequate control over its
subsidiaries and for the expansion and diversification of the overall TVS company. We can also
see how the company has reduced its dividends paid and has rather increased its retained
earnings for further future action.

In 2017-18 the company has further reduced its debt, to reduce the burden of financial costs and
at the same time it increased investments rapidly in its subsidiaries and other related companies.
The investment strategy shows how the company is aggressively investing in overseas
subsidiaries to expand and increase their market presence. Further, they paid higher dividends
this year as compared to the last but were also able to increase their retained earnings indicating
that they struck a balance between maximising shareholders wealth and saving funds for future
activities,

The strategies used by the company in 2018-19 seem to be slightly worrying due to the sudden
increase in the debt element of the capital structure which will further drive up financial costs
and at the same time the company has yet again increased its investments, but the return from
investments in terms of dividends have fallen tremendously while that in terms of interest has
only slightly risen. The dividends paid by the company have been relatively stable, and the
company was also able to retain a large amount of its earnings.

During the year 2019-20, The company is actively monitoring its capital structure and is
adjusting it according to their expansion plan and investments, with the only issue being the
proportion of debt to equity and its continuous increase which brings in more burden for the
company, especially due to the current scenario of Covid pandemic, as the company is facing
reduced sales and revenue. Coming to the dividends, the company seems to be declaring
dividends regularly and keeping the investors satisfied.

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We can see significant efforts from the company in the year 2020-21, with regards to its
debt-equity ratio as the company is actively reducing the debt component and introducing equity
capital, the debt burden from previous years is definitely hurting them but will soon pass if the
company continues in this direction. The company has also invested a lot in research and
development and is looking at coming up with something innovative to capture more of the
market. The dividends of the company are stable and there are two interim dividend payments
every year.

5 years share Prices:

Return vs Industry: The company exceeded the Indian Auto industry which returned 23.5%
over the past year.
Return vs Market: The company underperformed the Indian Market which returned 51% over
the past year.
Long-Term Price Volatility Vs. Market: TVS Motors share price volatility compared to the
market and industry in the last 5 years was low.

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P/E and P/B ratios of the company:
The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current
share price relative to its per-share earnings (EPS). Price-to-book ratio (P/B ratio) is used to
compare a firm's market capitalization to its book value. It's calculated by dividing the
company's stock price per share by its book value per share (BVPS)

ROA and ROE of the company:

ROE and ROA are important components in banking for measuring corporate performance.
Return on equity (ROE) helps investors gauge how their investments are generating income,
while return on assets (ROA) helps investors measure how management is using its assets or
resources to generate more income.

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Highlights from the Five-Year Analysis:

The major highlights from the analysis of strategic decisions above include the following -

● Tremendous increase in long term debt over the five year period while equity structure
has remained the same indicating that the company does not want to dilute its
management control.

● Increased investments in domestic and overseas subsidiaries to expand operations and

diversify. Expansion of investments in Central America and Indonesia to set up new hubs
and revamp exports and imports.

● Acquisition of Norton Motorcycles (Britain Company) for 153 Crores, to further

strengthen international business.

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 ● The dividends paid by the company increased by a small proportion till 2019-20, but
exponentially declined in the financial year 2020-21, while retained earnings have been
increasing consistently indicating. The fall in dividends may be due to the declining profit
and therefore the company may be increasing their retained earnings for contingencies.

Strategies for Future:

1. Improving Debt Structure: The company is currently in a situation where they are
overleveraging their debt and this can backfire as the company will have a burden paying
those debts back which in turn will make it difficult for investors to invest in the
company due to high risk, our suggestion is to reduce the debt component in their capital
structure and to gradually shift to using equity more, doing so will help them cut down on
their fixed expenses ultimately earning them more profits which can be used as retained
earnings and become an equity source, we assume that the company does have other
sources of equity which they can use to fund themselves.

2. Reorganising and managing investments: The company is facing a decline, return on

investment is showing a downward trend and the annual net profit is falling for the last
two years which shows inefficient and ineffective use of capital, the company should
consider a new investment plan, one which ensures a gradual increase in returns. We
assume that the company has the means to formulate a new and better investment
strategy.

3. Improving efficient usage of assets: The Return on Assets (ROA) is declining over the
past years and it only suggests that the company is spending funds on assets only to use
them inefficiently, for this, our suggestion is to get better skilled labour and engineers that
can bring out the maximum productivity out of the assets and machinery. We assume that
the reason for declining ROA is because of inefficient usage of machinery in particular
and that other assets are being used efficiently.

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4. Managing their loss-making subsidiaries: The company should reconsider how they
proceed with a few of the subsidiary companies as they are loss-making, like Sundaram
Auto Components Ltd, Intellicar Telematics Pvt Ltd, etc that are taking up significant
resources but are unable to provide profits. We suggest the company to either re-invest in
these companies to make them prosperous or sell them off in hopes of making a huge
capital profit. We assume that these subsidiaries are already doing their best and do not
have any underlying issues but are still unable to become profitable.
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5. Redirecting their Capital towards Innovation: With technology upgrading very
rapidly, the company should ensure they do not become obsolete and for this they need to
dedicate a part of their capital in research and development of new trends and
technologies such as the electric vehicles. Electric vehicles are here to stay at least for a
century and the company needs to ensure that they can capture the market share
considering their presence is majorly in India where electric vehicles have just begun
emerging.

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Financial forecast:
Assumptions:
● New capex into EV sector (1000cr)
○ With the boom and promotion of the electric vehicle market around the world and
consumer interest over it. Big Indian auto giants like TVS are entering to capture
the market share by pumping the capex to use current infrastructural facilities and
supply chain. Sudharshan venu joint managing director of TVS mentioned in an
interview that EV sector will be the next main focus area for TVS in upcoming
years.
○ TVS is not just the EV market but also the segments in the EV market. In the TVS
motors AGM the chairman of shareholders said that the company will focus and
launch a mid-to-premium range of products in EV vehicles. Also the company has
deployed more than 500 engineers into the process.

● Expansion of markets to international (subsidiaries).

● Product development and digital technologies
○ The company to boost its sales in the two wheeler segment has launched an app
called TVs arrive, introduction of 4 new flagship models will boost sales
significantly among the younger generation of buyers.
○ Augmented reality in two wheelers is said to be the next big innovation in the
niche. So the three available modes on the app perform specific functions to
ensure an all-inclusive experience to the users.

● Auto sales grow 7% YOY

- Growth fueled by two wheelers
● The Company has invested more than INR 100 Cr in Research & Development activities
for the development of technologies
○ The Company continued its funding for the product development of Electric
Two-wheeler and Three-wheeler.

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 ○ Investments have been made in developing advanced technologies for reduction
in tailpipe emissions OBD II, increasing fuel economy, lightweight technologies
and bio-fuel compatible products.
○ The Company has invested in new technologies for elimination of hazardous
chemicals from the components used in the products. The Company has adhered
to the internal standard developed as applicable viz., n, Restriction on Hazardous
Substances (RoHS) regulation.

CAPEX FORECAST
Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain
physical assets such as property, plants, buildings, technology, or equipment. CapEx is often used
to undertake new projects or investments by a company.

The company's capex is forecasted to increase because it is entering into the EV vehicle sector.
There are a lot of R&D and technological advancement planned for coming years increasing its
capital expenditure by over 1500CR.

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BALANCE SHEET FORECAST
The company is expected to increase its asset value in the coming years.

CASH FLOW FORECAST

Cash Cash flow per share is the after-tax earnings plus depreciation on a per-share basis that
functions as a measure of a firm's financial strength. Many financial analysts place more
emphasis on cash flow per share than on earnings per share (EPS). The company’s cash flow per
share will increase in the coming years.

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With the projected boost of two wheelers sales and following the trend line the net income of the
company will increase. Net income is the profit a company has earned for a period, while cash
flow from operating activities measures, in part, the cash going in and out during a company's
day-to-day operations.

P/E AND P/B RATIO FORECAST

The Average P/E ratio for the past 10 years is 27.9. The P/E shows what the market is willing to
pay today for a stock based on its past or future earnings. A high P/E could mean that a stock's

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price is high relative to earnings and possibly overvalued. It is in line with the Indian Auto
industry but the average is average poor value compared to the Indian market. The company is
overvalued based on its PB Ratio compared to the IN Auto industry average (3.6x).

The company’s return on asset is on par with industry’s Return on asset. The average Return on
equity on the other hand is considered low.

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CONCLUSION
TVS motor company as one among the largest market leaders displays its own strategic goals
and objectives through its financial decisions, acquisitions and investments. TVS motor company
is evolving from an assembling factor business model to product maker and manufacturer model.
The company has had a stable and financially sound performance in the last 5 years by
implementing its own financial, investing and dividend decisions to exhibit a strong sense of
acquisition and future goals of expansion. .

Company has clearly shown its own interest not to dilute the management and decision making
power by maintaining the equity at same levels. Also the company had also focused on
developing its international business base by acquiring a few subsidiaries under them to conduct
international business in near future to expand the operations.

TVS had a competitive advantage in the huge shift of BS4 to BS6 engines due to early shift and
readiness of the resources. The company had invested significant capital towards research and
development towards electric vehicles, with the launch of its first electric Scooter, TVS iQUBE.
The product came with 58 exciting features, with many 'Industry-first' elements and sold its only
electric two-wheeler, iQube, in more than 20 new cities. A substantial portion of the Rs
600-crore capex lined up for the year will be routed to EVs and emerging technologies, says
CEO. Priced at Rs 1,20,000 in Bengaluru, the iQube clocks monthly sales of 250-300 units in the
city.

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REFERENCES

● Tvsmotor.com. (2021). Retrieved 4 August 2021, from

https://www.tvsmotor.com/api/InvestorDownloadData?ItemId=a7330949-b97d-45fa-828
7-b276b44aa42d.

● Tvsmotor.com
https://www.tvsmotor.com/api/InvestorDownloadData?ItemId=7601d990-3eea-4788-a70
b-18815f6442ec

● Annual, audited and Unaudited financial reports - TVS Motors. (n.d.).

https://www.tvsmotor.com/Investors/Financial-Reports.
● Moneycontrol.com. (n.d.). TVS Motor Company LTD. swot ANALYSIS: WEAKNESS.
Moneycontrol.
https://www.moneycontrol.com/swot-analysis/tvsmotorcompany/TVS/weakness.
● Moneycontrol.com. (n.d.). TVS motor COMPANY: Dividends > auto - 2 & 3 WHEELERS
> DIVIDENDS declared by Tvs Motor company - Bse: 532343, nse: Tvsmotor.
Moneycontrol.
https://www.moneycontrol.com/company-facts/tvsmotorcompany/dividends/TVS#TVS.
● Moneycontrol.com. “TVS Motor Share Price, Tvs MOTOR Stock Price, Tvs Motor
Company LTD. Stock Price, Share Price, Live Bse/Nse, Tvs Motor Company LTD. Bids
Offers. Buy/Sell Tvs Motor Company Ltd. News & Tips, & F&o QUOTES, NSE/BSE
Forecast News and LIVE QUOTES.” Moneycontrol, Moneycontrol,
www.moneycontrol.com/india/stockpricequote/auto-23-wheelers/tvsmotorcompany/TVS.
● “Https://Www.tvsmotor.com/Annualreports.” Annual, Audited and Unaudited Financial
Reports - TVS Motors, www.tvsmotor.com/Investors/Financial-Reports.

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ANNEXURE

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