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Over the last one year, TVS Motor Co. Ltd’s shares have put up a stellar show, rising by about 60%. One factor that has helped investor sentiment is that it has been able to maintain its profit margin for the past few quarters amid cost pressures. With input costs easing, gross margin expanded by 63 basis points (bps) sequentially in the December quarter (Q3FY23). One basis point is 0.01%. Further, Ebitda margin was steady at 10.1%.

Nevertheless, rising share of electric vehicles (EV) means dilution of the overall margin profile even as this aided the company’s realization, which was a positive surprise in Q3 results. TVS saw nearly 6% sequential rise in net realization per vehicle. The growth in realization was led by price increases and better product mix, in favour of premium vehicles such as Apache and Raider, said the management in the earnings call. However, volume fell by 14%, leading to its operating revenue falling by 9% sequentially to 6,545 crore.

Commodity costs are expected to ease further, which is good for the margin. TVS expects Q4 to be better sequentially. It sees the rural economy to begin to improve led by better minimum support prices. Also, improvement in semiconductor availability would aid production.

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Still, the company said that a meaningful recovery of demand in domestic markets would take time as the cost of vehicles has gone up significantly. But income levels have not risen commensurately.

In export markets like Africa, inflationary pressures and depreciation of local currencies continue to weigh on demand. The Q3 was challenging with the share of two-wheeler export volumes at almost 25%, down from 30% in Q3FY22. The Q4 is likely to be better.

TVS continues to see strong demand for its EV product, iQube. It has launched three iQube variants and plans to introduce more vehicles in the EV category. In Q3, EV contributed 10% to domestic scooter volumes. The company’s EV market share is inching up and stood at 14.5% in Q3, according to Vahan data. TVS aims to double the volume in Q4 from Q3 levels, where it sold about 29,000 units. In FY23, TVS is confident of clocking more than 1,00,000 EV sales in domestic markets.

Sustained growth in two-wheeler volumes is a key trigger for the stock, which is down by 16.4% from its 52-week high of 1,176.90 seen in October. Currently, the stock trades at nearly 24 times FY24 estimated earnings, Bloomberg data shows.

ABOUT THE AUTHOR

Vineetha Sampath

Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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