TVS Motor Q3 Ebitda is at a high and that's comforting
Premium- Akin to its peers, the year-on-year growth in exports along with the price hikes undertaken by TVS compensated for the muted domestic demand
TVS Motor Co. Ltd’s December quarter results (Q3FY22) are nothing to complain about. Ebitda (earnings before interest, tax, depreciation and amortization) per vehicle is at an all-time high.
Jefferies India analysts said in a report that TVS’ Ebitda/vehicle in Q3 increased by 25% and 5% on a year-on-year and sequential basis, respectively, to ₹6467. Moreover, Ebitda margin was in double digits at 10%, flat versus Q2, which is nothing to sneeze at. Ebitda margin has expanded 50 basis points year-on-year. One basis point is 0.01%.
Akin to its peers, the year-on-year (y-o-y) growth in exports along with the price hikes undertaken by TVS compensated for the muted domestic demand. As such, the impact of 11% y-o-y drop in Q3 volumes was more than nullified by the price hikes, leading to 6% increase in revenues to Rs5706 crore.
Cost control measures amid rising commodity prices and supply chain inefficiencies, boosted margins. Increased premiumization aided growth too. “TVS Motor’s diversified domestic portfolio, superior export mix and success of recent 125cc launches showcase its capability to deliver superior Ebitda growth" analysts at ICICI Securities said in a report.
Unsurprisingly, TVS’ shares opened 5% higher on NSE on Tuesday and are now trading about 2% higher.
The management is optimistic about the improvement in the operating environment as supply chain and container availability issues gradually ease. This is evident from the month-on-month increase in total sales volumes; 266,788 units in January 2022 in comparison to 250,933 units in December 2021.
What is more, exports are likely to do well with the surge in crude oil prices. Also, the relaxation of import restrictions in countries such as Sri Lanka will bode well for the company.
Meanwhile, TVS Motor has made a slew of announcements in the electric vehicle (EV) space. It looks forward to expanding its electric scooter, TVS iQube, to more cities by the end of FY22. The company's memorandum of understanding (MoU) with Swiggy is one step forward to this goal. As part of the MoU, TVS Motor and Swiggy will test the implementation of iQube for food delivery and other on-demand services of Swiggy. It expanded its EV capacity to 10,000 units per month but this is likely to be achieved once chip constraints soften.
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Further, TVS Motor’s acquisition of 75% stake in Swiss E-Mobility Group (SEMG) and MoU with the Government of Tamil Nadu (TN) fuel its commitment towards electrification. The SEMG acquisition will help it enhance its portfolio in Europe. Under the MoU with the TN government, TVS Motor will invest Rs1,200 crore in future technologies and EVs in the next four years.
On the electric three-wheeler front, it plans to launch its product in the market in the coming quarters. It also has an order of 2,000 e-3W from a government agency - Convergence Energy Services Ltd (CESL).
Q4 is expected to be better sequentially with falling covid cases, improving demand and effective cost control measures. “Rising vehicle prices and Covid have taken a big toll on Indian 2W demand and the segment is lagging in recovery. However, we see signs of bottoming out and expect a gradual recovery from an abnormal cyclical trough" said analysts at Jefferies India.
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