TVS Motor revs up with strong outlook, market share gains, new launches

Two-wheeler company's margin gains among factors that should be monitored: Analysts

TVS Motor Company has been one of the best-performing two-wheeler stocks in this Financial Year (FY24), enriching investors with gains of 24 per cent. Among listed two-wheeler stocks, only Hero MotoCorp has done better in this period. New launches, market share gains, steady margins and expectations that its performance will continue in FY24 are expected to support TVS Motor’s stock.

New launches in the internal combustion engine and electric vehicle (EV) segments could be a near-term trigger. The company recently launched the TVS X, a premium electric scooter. Given the price point of Rs 2.5 lakh, the product may not garner large volumes and could be targeted at a niche market. Prabhudas Lilladher Research believes the company could focus on exports by using its strong presence in the global market and leverage its recent acquisition in Europe to showcase the scooter. For the Indian market, the brokerage expects TVS to launch EV products at lower price points to compete against similar launches by peers.

The company outperformed peers in the June quarter and gained 450 basis points market share in motorcycles to achieve a record level of 10.8 per cent. It maintained its scooter share of 25 per cent. HDFC Securities believes with supply challenges now largely over, the company’s performance would continue on the back of healthy demand for its best-selling motorbikes like Raider, Apache and Ronin. To be a leader in the electric two-wheeler segment, TVS is putting up building blocks with new launches, strengthening the dealer network and sign-ups with industry experts, joint venture partners and e-commerce players.

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The street will keep an eye on the company’s margin performance. Led by a favourable mix, price hikes and cost reduction measures, the company reported a 60 basis expansion in margins to 10.6 per cent. This is the seventh consecutive quarter of double-digit margins for the company with profitability now consistently above the 10 per cent mark.

Uday Phani, an analyst with JM Financial Research, expects the company’s performance to continue on the volume front, while softening raw material prices, premiumisation, operating leverage and astute cost management would help margin.

Brokerage IIFL Research, however, believes that premium valuations for the stock (26-27 times FY25 earnings) do not factor in the negatives. IIFL analysts led by Joseph George argue that TVS Motor has been free cash flow positive only once (FY21) in the last five years and improvement in profitability has been offset by high capex and investments in recent years.

The company invested Rs 615 crore in subsidiaries in Q1FY24: An amount that is 1.3 times standalone profits. There is no clarity on sustainability of EV growth and the path to profitability now that the government’s FAME subsidy has been cut, said IIFL. 

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