TVS Motor is on cruise control
PremiumTVS Motor’s margins are behind its peers, and bridging this gap will be a key monitorable for its investors
TVS Motor Co. Ltd’s shares rose 3% on Tuesday. Investors are visibly pleased with its December quarter (Q3FY22) results. Here, the consistent delivery on the margin front stands out. Ebitda (earnings before interest, taxes, depreciation, and amortization) per vehicle in Q3 reached an all-time high of ₹6,467, according to Jefferies India data. Ebitda/vehicle in Q3 increased by 25% year-on-year (y-o-y) and 5% sequentially.
Ebitda margin at 10% was flat sequentially and expanded by about 50 basis points y-o-y thanks to effective cost control measures, despite rising commodity costs and supply chain inefficiencies. One basis point is 0.01%. Yet, it is worth noting that TVS Motor’s margins are behind its peers. For instance, Bajaj Auto Ltd’s Q3 Ebitda margin stood at 15.2%. As such, bridging this gap will be a key monitorable for TVS Motor’s investors who are sitting on smart gains. In the past six months, the company’s shares are up 15% vis-à-vis about 10% and 6% drop in shares of Bajaj Auto and Hero MotoCorp Ltd, respectively.
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Analysts reckon the slew of announcements made by TVS Motor in the electric vehicle (EV) space has helped investor sentiments for the stock. The company intends to expand its electric scooter, TVS iQube, to more cities by FY22-end. The memorandum of understanding (MoU) with Swiggy is one step forward to this goal.
iQube currently has an order book of 6,000 units. On the electric three-wheeler front, it currently has an order of 2,000 units from a government agency—Convergence Energy Services Ltd.
Varun Baxi, research analyst at Prabhudas Lilladher points out, “TVS is a front runner in electric 2W space. The stock’s outperformance compared with its peers owes to a confluence of factors, including TVS Motor’s aggressive EV plans, margin expansion, good export performance, and increased traction for its new products such as Jupiter 125cc and Raider 125cc."
Meanwhile, the current quarter is expected to be better sequentially with a fall in covid cases, improving demand and raw material costs stabilizing. “Though we expect the domestic 2W industry to face near-term demand weakness, we also expect TVSL’s outperformance to continue on the volume front, while rising exports at a better exchange rate would help on the margin front," said JM Financial’s analysts in a report. Even so, any further disruptions or lag in electric transition is a key risk for the stock.
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