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Resilient performance; cost optimisation to drive profitability

In 4QFY22, TVS Motor (TVSL) reported EBITDA margin of 10% (flat YoY, +10bps QoQ), inline with JMFe. Management expects the demand to bounce back in domestic market driven by improving rural sentiment and new product launches. Demand traction in export continues to remain strong. The management remains confident on maintaining double-digit margin trajectory. We expect TVSL’s outperformance will continue on the volume front, while rising exports at a better exchange rate would help on the margin front. In relation to EVs, TVS iQube current order backlog stands at over 12k units and the company plans to expand production to 10k units/month by the end of 1QFY23. Considering pick-up in rural sales, robust premium product portfolio and healthy export outlook, TVSL is our top-pick in the 2W space. We estimate revenue / EPS CAGR of 16%/33% over FY22-24E. We re-iterate BUY with a Mar’23 TP of INR850 (25x fwd. earnings). Key risks are :a) Prolonged economic slowdown, b) Market share loss in the domestic industry, c) Sharp jump in commodity prices, and d) Lag in electric transition remains key risk factors.

* 4QFY22 – margin in-line: In 4QFY22, TVS Motor reported net sales of INR 55.3bn (+4% YoY, -3%QoQ), 2% below JMFe. Volumes decreased 3% QoQ. Blended realisation increased 13%YoY/ flat QoQ. EBITDA margin was 10%, in-line with JMFe driven by costcontrol initiatives. Despite various challenges in terms of increase in commodity cost and shortage of semiconductors, reported EBITDA stood at INR c.5.6bn (+4%YoY, -2% QoQ). Adj. PAT for the quarter was INR 2.7bn (-5% YoY, -5% QoQ), 7% below JMFe

* Demand environment: The Management highlighted that it expects to outperform the industry in both domestic and export segments. TVSL expects demand to pick up in the coming quarters aided by a) new product launches, b) improving consumer sentiment, and c) expectations of normal monsoon. Semi-conductor challenges led to lower sales of the premium product (Apache & Raider) but the management expects the situation to graudally improve. The company is partnering with multiple suppliers to manage the chip situation. The company remains upbeat on export demand going ahead driven by a) currency stabilisation, and b) wide range of product portfolio. Africa continues to be the primary focus market for TVS

* Pricing and margin outlook: TVS hiked prices by 1.5% in 4QFY22 to offset RM inflation. It plans to mitigate higher commodity prices by a) better product mix, b) cost-reduction initiatives and, c) price hikes. Management expects RM cost to stabilize in 1HFY23 driven by easing out of geo-political tensions.

* Update on EV initiatives: TVSL plans to expand production capacity to 10k units/month by 1QFY23 with current order book of iQube standing at over 12k units. Currently TVS iQube is present across 33 cities and the company plans to expand its reach to pan-India during FY23. The company plans to launch series of e2W and e3W over next 18 months and expects to develop EV product for every major customer segment. TVSL’s increasing focus on the EV segment through new launches as well as strategic tie-ups globally will help build scale on the EV platform

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