TVS Motor Co. Ltd faced hurdles and reported stable performance in the June quarter of FY23. While auto companies have so far reported a decline in their Ebitda (earnings before interest, taxes, depreciation and amortization) margins, TVS has bucked the trend.
The company has maintained its Ebitda margin at 10% for the fourth consecutive quarter amid severe cost pressures and chip constraints. The measure has expanded by 300 basis points year-over-year. One basis point is 0.01%.
Investors were clearly thrilled. TVS shares hit new 52-week high 953.20 intraday every day on NSE on Friday. The stock rose 9.5 per cent in early trade.
Sequentially, raw material inflation increased by 2% and TVS increased prices by 1.5%, the company said in the earnings call. It increased the Ebitda per vehicle from 1.7% with cost control measures 6,611, which is a multi-quarter high.
“It is enjoying the benefits of economies of scale and operating leverage, resulting in maintaining EBITDA margins at double-digit levels. However, TVS earns around 40% of its total Ebitda from the domestic scooter business, making it vulnerable to an electric vehicle (EV) disruption in the listed two-wheeler segment,” analysts at Motilal Oswal Financial Services said in a report on July 29. said in. .
It is also gearing up for its own EV launch with its product, the i-Cube, which is currently in three variants. Production is likely to increase to 10,000 units per month and eventually to 25,000 per month in the near future. Production in June was 4,500 units per month. The order book is 20,000.
While its plans to foray into the EV segment are encouraging, chip shortages are a cause for concern. The company needs to strike a balance between EV production and premium bike production. The crisis took a toll on Apache and Raider production in the first quarter.
But going forward, the situation is likely to normalize as the automaker is sourcing components from other suppliers. This means a higher mix of premium brands in the second quarter which will help margins.
Further, moderation in commodity cost is positive for margins and it expects moderate inflation in Q2. But from Q3, it sees input costs coming down from flat.
On the demand front, recovery in rural markets is good with expectations of the upcoming festive season and normal monsoon. But in some export markets, demand is seen under pressure due to devaluation of the local currency.
“We expect TVS earnings to more than double from FY22-24, and our FY24 earnings per share up 26% down the road,” analysts at Jefferies India said in a report on July 28. The broking firm believes that the stock’s rich valuation is justified in view of its strong growth outlook, heading for further margin expansion and improvement in the franchise.
Certainly, loss of market share in the domestic industry and delay in power transition are the major risks. Also, once the ramp-up in EVs becomes significant in the industry, investors will have to track the pace of demand for TVS’s scooter business in the medium to long term.
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