TVS Motors : Consistent volume growth, margin expansion; maintaining a Buy - Anand Rathi Share and Stock Brokers
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Consistent volume growth, margin expansion; maintaining a Buy
TVS Motors’s off-take continued to grow during the quarter despite semiconductor shortages. Demand for motorcycles and scooters continues to improve based on the recent volume offtake during the festival season and is expected to be strong in H2 FY23. Launches and product refreshes continue to receive positive responses from customers. Also, the ramp up in iQube production in the near term augurs well for growth. Hence, we maintain our Buy rating at a revised TP of Rs1,330 (26x FY25e).
Rising off-take. Q2 FY23 volumes grew 12% y/y, 13% q/q, to 1,027,437 units, while revenues grew 15% y/y, 6% q/q, to Rs72.2bn. Semiconductor constraints continued to curtail production; however, TVS had added a vendor in Q1, which led to better offtake in the recent quarter. During the festival season, it refreshed popular models such as Apache with various features, and other models such as Ronin, Ntorq and Radeon continue to receive positive responses from customers. In EVs, iQube is now present in 150 cities (83 the previous quarter) and there are open bookings of ~25,000 vehicles (~20,000 last quarter). Hence, we expect strong 28% growth in FY23 and 16% in FY24.
Better margins in the next two years. Despite raw material prices further inching up in Q2 FY23, the 10.2% healthy margin was maintained. Prices were raised 1% in the quarter, though some under-recovery persists, which would be passed on in subsequent quarters, in our view. As supply constraints have started to ease, we expect volumes to pick up, driven by better off-take of premium twowheelers. Accordingly, we expect margins of 10.6% in FY23 and 11.4% in FY24
Introducing FY25e. We expect FY25 revenue to grow 16% y/y, margins to expand to 11.4% and earnings to grow 20% y/y to Rs23.5bn
Valuation. We expect a 20% revenue CAGR over FY22-25, and 38% earnings growth, leading to an EPS of Rs49.6. We maintain our Buy rating with a higher TP of Rs1,330 (26x FY25e), incl. Rs41 a share for TVS Credit Services.
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