TVS Motor’s all-time high Ebitda margin in Q4 gets amply rewarded by investors
Premium- Shares of the company rose over 15% in early deals on Wednesday on the National Stock Exchange
NEW DELHI : Shares of TVS Motor Company Ltd rose more than 15% in early deals on Wednesday on the National Stock Exchange, hitting a new 52-week high. Not without reason. The two-wheeler company’s March quarter (Q4FY21) results, announced after market hours on Tuesday, have surprised the Street positively, especially on the profit margin front.
The company’s standalone earnings before interest, tax, depreciation, and amortization (Ebitda) margin expanded by around 60 basis points vis-à-vis the December quarter to 10.1%. One basis point is one-hundredth of a percentage point. On a year-on-year basis, Ebitda margin has improved by 304 basis points. According to Jefferies India Pvt. Ltd, TVS Motor’s Ebitda per vehicle increased by 12% sequentially and this measure, along with Ebitda margin were both at an all-time high.
TRENDING STORIESSee All
The upshot: Ebitda for the March quarter has increased by 119% to Rs536 crore. This on the back of about 53% year-on-year revenue growth to Rs5,322 crore, which was helped by 46% sales volume growth. A combination of price hikes, better product mix (higher exports) and cost control initiatives have helped the company’s operating performance. It’s also worth noting that this comes at a time when investors are worried about the adverse impact of higher raw material cost pressures on profit margins for auto firms. Against this backdrop, TVS Motor’s performance is encouraging for investors.
The company’s March quarter results have prompted many analysts to upgrade their earnings estimates for financial year 2022 and financial year 2023.
To be sure, the road ahead is not particularly smooth. For one, the second covid-19 wave is expected to weigh on auto demand. TVS Motor management told analysts that it expects covid-19 lockdowns to impact demand in the June quarter. Further, higher commodity costs continue to be a worry for auto companies, which means investors will closely watch how margins shape up in the near future.
In general, analysts reckon TVS Motor would be able to cope with these challenges effectively. Analysts from Ambit Capital Pvt. Ltd said in a report on 28 April, “With industry-beating growth in the domestic two-wheeler market continuing, along with stronger growth in exports, the rising profitability trajectory would result in around 53% earnings CAGR in FY21-FY23E." CAGR is compound annual growth rate.
Jefferies’ analysts said in a report on 27 April, “Notwithstanding near-term covid issues in India, we expect a synchronized demand recovery in domestic and export markets driving strong 14%/13% volume growth for TVS in FY22/FY23."
The only hitch is that the stock’s sharp appreciation on Wednesday suggests investors are capturing a good portion of the optimism and earnings recovery. Currently, TVS Motor’s shares trade at around 29 times estimated earnings for financial year 2022, based on Jefferies’ data.
Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.