Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Market / Mark-to-market/  TVS leaves peers biting the dust
BackBack

TVS leaves peers biting the dust

The magic formula for TVS was a superior product offering mixed with the timely introduction of scooters, with a good urban presence

The scooter segment, which brings in a little over a quarter of the company’s sales volumes, has grown at a scorching pace for the past few quarters. Photo: Hemant Mishra/MintPremium
The scooter segment, which brings in a little over a quarter of the company’s sales volumes, has grown at a scorching pace for the past few quarters. Photo: Hemant Mishra/Mint

TVS Motor Co. Ltd has raced ahead in the stock market, riding on the rapid growth of its scooters business.

Since April, its shares have rallied 203%, racing ahead of the benchmark BSE auto index and even its key competitors, Bajaj Auto Ltd and Hero MotoCorp Ltd.

Its valuation has risen as a result—projected price-to-earnings ratio (PE) for fiscal 2016 has shot up to 22 from single-digits a few quarters ago, while those of Bajaj and Hero have remained stable between 16-18.

Several quarters ago, the situation was starkly different, with the stock being an underperformer.

The magic formula was a superior product offering, mixed with the timely introduction of scooters and a good urban presence.

From being a household name in the rural markets, with its early and successful product range of mopeds, the company now rides on a wider range with a wider geographical reach.

The scooter segment, which brings in a little over a quarter of the company’s sales volumes, has grown at a scorching pace over the past few quarters. The December quarter volumes were 51% higher, compared with a year ago. On the whole, TVS sales grew 23%, compared with a marginal contraction posted by both Bajaj and Hero.

Year till date, TVS has posted a growth of 27% in volume terms, leaving most other companies far behind. Although this is on a smaller volume base, given that TVS’s total monthly sales is less than half of Hero, analysts believe that growing volumes could be a key positive for earnings growth due to better operating leverage.

That is one area where it is underperforming at present. TVS’s single-digit margin, based on stand-alone financials, pales before the average figure of around 14-15% posted by Hero and around 20-21% by Bajaj in the past few quarters. According to Arun Aggarwal, analyst, Kotak Securities Ltd, “Strong volumes are expected to contribute to margin expansion."

Analysts estimate that although the earnings growth of most two-wheeler firms will moderate in fiscal 2015, the coming year should see TVS outperform both Bajaj and Hero. That may explain why its share has rallied in the past few months. If the raw material costs and conversion costs go lower, it could be a positive for TVS and the two-wheeler sector, too. Some key things to watch out for are whether new launches can build on their success, and the impact of market share on its profitability. Also, a major overhang has been the losses incurred by its Indonesian unit, which affects the consolidated profit number and becomes the party-pooper sometimes.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 11 Jan 2015, 08:41 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App