Markets
TVS Motor shares accelerate on good margin performance in Q4 despite headwinds
Summary
Substantial upsides from this point will depend on the company’s ability to sustain margin performance and maintain growth in volumes.
Shares of TVS Motor Co. Ltd hit a new 52-week high of ₹1,234.95 apiece on Friday, rising more than 4% following the release of the company’s Q4 FY23 results. The automaker’s margin remained steady as electric vehicle (EV) volumes increased, even as the share of exports and three-wheelers decreased.
The automaker’s EV, the i-Qube, saw a 48% sequential increase in volume during Q4, contributing to a 2% sequential increase in net realization per vehicle to ₹76,055. Despite the higher share of EVs, which some analysts expected to impact margin performance, the company’s Ebitda margin rose about 20 basis points (bps) year-on-year (YoY) and sequentially to 10.3%. Ebitda is short for earnings before interest, tax, depreciation and amortization. One basis point is one-hundredth of a percentage point.
Of course, commodity tailwinds assisted margin performance, with softening input costs providing a 90bps benefit in Q4 for TVS.
“TVS is enjoying the benefits of economies of scale and operating leverage, due to which the Ebitda margin is sustaining at double-digit level," said analysts at Motilal Oswal Financial Services in a report on 4 May.
However, demand remains a concern as export markets are yet to see a significant turnaround. TVS is cautiously optimistic about exports and anticipates recovery only from second half of FY24. In domestic markets, rural demand continues to be muted, making good monsoons crucial for a rebound in demand.
Also, TVS took a price increase of 0.5% in Q4 and another hike of 1% towards the quarter end to pass on the cost increase of transition to the new regulatory norms. “Consistent price increases taken by multiple original equipment manufacturers continue to weigh on overall recovery for the sector, in our view," said analysts at Kotak Institutional Equities in a report on 4 May.
Margin trajectory amid increasing EV volumes requires close monitoring. “We expect margin recovery to fall below expectations for the company, as we expect the domestic ICE (internal combustion engine) scooter mix to decline (more profitable) while the EV segment mix will continue to rise (less profitable)," said Kotak analysts.
So far in 2023, TVS shares have risen nearly 13%. Substantial upsides from this point will depend on the company’s ability to sustain margin performance and maintain growth in volumes.
