TVS Motor scores on volumes, market share

Cost control initiatives should improve margins

The TVS Motor stock has been hitting fresh 52-week highs over the last week on expectation of a strong volume growth and market share gains.

The company, which reported a 16 per cent year-on-year (y-o-y) volume growth in the September quarter, is expected to report a 25 per cent increase in volumes in November. Robust demand, both from the domestic and exports markets, and a low base should help TVS.

In recent months, its scooter Jupiter has been driving volumes and is currently the fifth-largest selling two-wheeler. The Jupiter’s sales grew 29 per cent y-o-y to 81,326 units in October, helping the company report a three per cent growth in overall volumes when that of the industry fell three per cent.

Analysts expect the brand, which hit the two-million mark in September, to continue its growth momentum on account of an expanding distribution network and launch of variants.

TVS Jupiter was launched four years ago. TVS’s scooter portfolio, which also includes the Wego, the Scooty pep+ and the Zest brands, accounts for 35 per cent of its two-wheeler sales. The company has gained 270 basis points (bps) market share in the scooter segment in the September quarter.

In the motorcycle segment, while it has products such as the Sport, the Victor and the StarCity, TVS has gained a market share in the premium segment with brands such as the Apache. The company’s market share in the premium segment has increased to 23 per cent from 17 per cent in FY17.  Its share in the premium bike pie could increase as the company readies to launch the 310cc bike on the BMW platform in the next couple of months.

While the three-wheeler portfolio is small, it is growing at a brisk pace and recorded 24 per cent growth in the September quarter to 25,000 units. The opening up of the three-wheeler permits could boost demand for TVS’s products.

Exports, too, are expected to perform well and could grow 25 per cent in November to 41,000 units on good demand and low base, analysts said. Strong volumes, aided by an improvement in rural demand and launches, will help TVS gain a market pie in these key segments.

Higher volumes, coupled with operating leverage, should boost operating profit margins, which had hit a 12-year high in the September quarter at 8.6 per cent. Despite a rise in raw material costs, TVS’s margins increased 50 bps y-o-y, led by volume growth, cost control initiatives and price hikes. The company has stuck to its FY19 target of double-digit margins and there is a possibility that it would reach its target in the March quarter of FY18.

At the current price, the stock, which has more than doubled over the last year, is trading at an expensive 29 times its FY19 estimates.