IGI Logo

Resilient performance; credible EV strategy at play 

In 3QFY23, TVS Motor (TVSL) reported EBITDA margin of 10.1% (+10bps YoY, -10bps QoQ), c.50bps below JMFe. Management expects demand recovery going ahead on the back of improving rural demand and EV product launches. Affordability and currency related challenges remain near-term headwinds for exports but management is cautiously optimistic and expects to outperform industry growth. We expect TVSL’s outperformance will continue on the volume front, while softening RM prices, premiumization and astute cost management would help on the margin front. In relation to EVs, TVS iQube current order backlog stands at c.30k units and the company plans to double its wholesales during 4Q to 20-25k units/month by Mar’23. With expected pick-up in rural sales, robust premium product portfolio and recovery in export demand, TVSL is one of our top picks in the 2W space. We estimate revenue / EPS CAGR of 17%/36% over FY22-25E. We re-iterate BUY with a Mar’24 TP of INR1,225 (25x fwd. earnings). Key risks are: a) Prolonged slowdown in international market and b) Market share loss in the domestic industry.

* 3QFY23 – Margin misses estimates;

RM price benefit to continue in 4Q: In 3QFY23, TVS Motor reported net sales of INR 65.5bn (+15% YoY, -9%QoQ), 4% above JMFe. Volumes declined 14% QoQ. Blended realisation increased c. 6%QoQ / 14%YoY. EBITDA margin stood at 10.1% (+10bps YoY, -10bps QoQ), ~50bps below JMFe due to lower than expected RM benefit (owing to EV ramp-up). Reported EBITDA stood at INR 6.6bn (+16% YoY;-11% QoQ). Adj. PAT for the quarter was INR 3.5bn (+22% YoY, +13% QoQ).

* Demand environment:

The Management highlighted that it expects to outperform the industry in both domestic and export segments. In the domestic market it expects demand recovery led by a) improving consumer sentiment in rural market (owing to higher rabi sowing) and b) new product launches. The management indicated that dealer inventory remains lean. Recently launched TVS Ronin has been received well and monthly volumes continue to increase gradually (at 3k units/month currently). Chip supplies have improved. The company expects to ramp-up the production (incl. for EVs) going ahead. Overall, demand recovery is expected to be led by EVs and premium segment. In the international market, high inflation and currency depreciation has impacted the demand. However, retail sales were higher than wholesales during 3Q. The company remains cautiously optimistic on export demand and expects to outperform the industry growth.

* Pricing and margin outlook:

TVS took blended price increase of 0.7% during 3QFY23. Benefit of lower RM cost (30bps), price hikes and better mix during 3Q was offset by negative operating leverage and higher share of EVs. Further benefit of softening commodity prices is expected in 4Q. Marketing initiatives on new brand launches are expected to continue. Overall, TVSL expects a) better product mix, b) cost-reduction initiatives, c) higher operating leverage (especially for EVs) to be additional levers for margin going ahead.

* Update on EV initiatives:

In the near term, TVSL plans to ramp-up EV wholesales gradually to 20-25k/month (doubling over 3Q volumes). Order book of iQube stands at c.30k units. Currently, TVS iQube is present across 200 outlets in 100-110 cities and the company

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361

Above views are of the author and not of the website kindly read disclaimer