TVS Motors believes good Q2 performance, better outlook have boosted investor confidence

Investor confidence has been weak in recent times, given the weak demand for two-wheelers in the country.

However, TVS has benefited from strong exports and recorded total two-wheeler sales at 870,000 units in the quarter as against 834,000 units in Q2 of 2020-21. There has been a growth of 46% in the export sales of two wheelers as compared to the second quarter of last year. Motorcycles registered sales of 439,000 units in the quarter ended September 2021, as against 366,000 units in the quarter ended September 2020.

Rising commodity costs have been another concern of investors. Some increase in receivables and prudent cost management meant that the company was able to post a decent operating performance. Average receipts per unit ₹61,000 per unit was up 15% on a year-on-year basis. The company has also posted the highest ever EBITDA ₹562 crore as against ₹430 crore during the quarter ended September 2020.

Analysts at Motilal Oswal Financial Services Ltd said contraction in gross margin was limited by 50bps sequentially (up 30bp yoy) to 23.8% as commodity cost inflation was eased by price hikes and better mix.

As the Q2 performance by the company impacts, the two-wheeler sales outlook in the country has also improved. Two wheeler sales are expected to pick up from the current festive season.

Domestic two-wheeler volume outlook is positive, and premium motorcycles/scooters may outperform going forward, said analysts at Emkay Global Financial Services Ltd. Export outlook is encouraging, owing to healthy demand in Africa and Latin America regions, they add and hence expect 11% volume CAGR on FY22-24%.

Confidence on profitability has also improved with Q2 performance. Increasing sales can help companies pass costs.

Analysts at Kotak Institutional Equities Ltd said, “We expect the company’s profitability to improve on the back of strong demand momentum in the export markets and a gradual recovery in the domestic market.”