IGI Logo

Steady show; credible EV strategy at play

In 2QFY24, TVS Motor (TVSL) reported EBITDA margin of 11% (+80bps YoY, +40bps QoQ), broadly in-line with JMFe led by cost reduction efforts, favourable mix and higher operating leverage. Domestic 2W demand is led by improving consumer sentiments (as indicated by festive demand) and expected rural recovery. Affordability and currency related challenges in the international markets have largely bottomed out. In relation to EVs, TVS plans to ramp-up EV business by introducing new products and expanding its footprint globally going ahead. Overall, we expect TVSL’s outperformance to continue on the volume front (led by premiumization and EV product launches), while steady/softening RM prices, operating leverage and astute cost management would help on the margin front. We estimate revenue / EPS CAGR of 15%/28% over FY23-26E. We maintain BUY with a Mar’25 TP of INR1,650 (25x Mar’26E EPS). Prolonged slowdown in international market remains a key risk.

* 2QFY24 – Broadly in-line margin performance: In 2QFY24, TVS Motor reported net sales of INR 81.5bn (+13% YoY & QoQ), c.1% below JMFe. Volumes increased 5% YoY (13% QoQ). Blended realisation increased 8%YoY / flattish QoQ. EBITDA margin stood at 11% (+80bps YoY, +40bps QoQ), broadly in-line with JMFe led by cost reduction initiatives (incl. material cost), favourable mix and higher operating leverage. Reported EBITDA stood at INR 9bn (+22%YoY, +18%QoQ). Adj. PAT for the quarter was INR 5.4bn (+32% YoY, +15% QoQ), 6% below JMFe. Other income includes gain on fair valuation of an investment of INR 375.5mn.

* Demand environment: Domestic 2W retail sales are gradually improving and demand recovery was led by premium segment (125cc+) in the urban region. The company expects rural growth to recover on gradual revival in consumer sentiments led by rising income levels, strong govt spends on Infra partially offset by uneven spread of monsoon which may act as a dampner. In the near-term, festive demand remains healthy. Overall, the management expects TVSL to outperform the industry in both domestic and export segments led by its extensive product portfolio. In the international market, high inflation and currency depreciation has impacted the demand. Management, however, indicated that worst is over and it expects exports to gradually recover going ahead. Inventory in international market is optimum (20-30 days) and thus wholesale volume performance is expected to be in-line with retail demand.

* Margin outlook: Benefit of cost reduction initiatives (incl. material cost), favourable mix, and higher operating leverage partially offset by higher marketing spends drove margin expansion during 2Q. The company indicated that it will continue to judiciously invest towards brand building / marketing going ahead. Commodity prices are expected to remain steady / soften during 3Q & 4Q. Overall, TVSL expects a) steady RM prices, b) costreduction initiatives, c) higher operating leverage (especially for EVs) to be additional levers for margin expansion going ahead.

* Update on EV initiatives: The company plans ramp-up of iQube volumes to 25k units/month going ahead. Currently, TVS iQube is present across 337 touchpoints and the company plans to expand its presence to 600 touchpoints by FY24 end. It also plans to export iQube to developed and developing nations during FY24. Recently launched TVS X has been received well amongst customers and the company plans multiple new launches (between 5-25kWh) and build a complete EV product portfolio over next 8 quarters. Launch of E3W is also expected in the near-term. TVSL’s increasing focus on the EV segment through new launches as well as strategic tie-ups globally will help build scale in the EV portfolio. The company is closely working with Ministry of Heavy Industries on PLI scheme and is confident of qualifying for the same.

* Investment, capex and subsidiary performance: 1) Capex guidance for FY24 stands at INR ~10bn. The company also plans to invest INR 8-9bn in subsidiaries in FY24 (~INR 6.5bn invested during 1H). The management reiterated that all recent investments have been towards future mobility business and will yield returns over the coming years. These investments will also help the company to enter and expand in developed markets. 2) TVS Credit’s book size as on Sept 30, 2023 stood at INR 235bn+; PBT came-in at INR 1.80bn vs. INR 1.57bn QoQ.

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

SEBI Registration Number is INM000010361