Despite price hikes, TVS Motor expects growth to revive in March quarter

Even as the two-wheeler sector continues to be struggle with high inventory and muted demand, TVS Motor seems to be doing better than peers. On the back of 19 per cent volume growth, price hikes and better realisations, the company’s sales grew a robust 26 per cent over the year-ago period. 
 
While domestic sales for December were below par on account of the muted festival season, the company is expecting growth to revive in the March quarter. Fiscal year-to-date sales volumes for TVS were at 15 per cent, compared to the previous year.
 
The company indicated that weak sales for the sector over the last couple of months were on account of rise in product costs due to upfront insurance charges and also the NBFC issue. The company, however, indicated that this has changed, with liquidity issues now easing and credit being available for various segments.
 
While there has been a slowing down of the scooter market due to aggressive entry-level motorcycle pricing, the company indicated that the demand weakness in urban markets is expected to reverse as funding issues ease.
 

Exports continue to lead the domestic market, registering a growth of 26 per cent as compared to domestic growth of 15 per cent. The management indicated that stable demand in key markets, coupled with greater availability of dollars as compared to the period of oil price crash, should keep the momentum going for this segment.
 
While revenue growth was positive, higher share of the premium/three-wheeler portfolio and operating leverage helped it post increased profitability. Margins in the quarter came in at 8.1 per cent, which were better than expectations of 7.9 per cent. Margins are also likely to improve, given raw material costs are expected to trend down. Though margin improvement is positive, it continues to trend below the company’s target of double-digit profitability.
 
While the company hopes for an uptick in volumes, how expected price hikes to incorporate changes on account of the new safety norms will be received by the market, is a key monitorable. The company believes that safety-related price hikes will not impact demand.  With margins in single digits and valuations at a premium to larger peers, there is little upside from these levels.