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TVS Motor Co. Ltd has beaten peers Bajaj Auto Ltd and Hero MotoCorp Ltd on revenue growth and Ebitda margins in the March quarter (Q4FY22). Ebitda is earnings before interest, tax, depreciation and amortization.

TVS saw 4% year-on-year (y-o-y) growth in standalone revenue to Rs5,530 crore. Net realization improved by 12.5% y-o-y led by price hikes and favorable mix, though this was partly offset by an 8% y-o-y drop in volumes. This is in sharp contrast to the 8% and 14.6% drop in Bajaj Auto’s and Hero MotoCorp’s Q4 revenue, respectively. While the former’s volumes were heavily impacted by semiconductor shortage, the latter was affected by slowdown in the entry segment.

Further, TVS’ Ebitda increased by 4% y-o-y to Rs557 crore. Ebitda margin remained stable y-o-y and sequentially at 10.1% as decline in gross margin by 81 basis points (bps) y-o-y was offset by the drop in other expenses. One basis point is 0.01%. Note that Bajaj Auto (adjusted) and Hero reported a 84bps and 279bps y-o-y decline in Q4 Ebitda margin, respectively.

“Diversified domestic portfolio, rising export mix and success in premium two-wheeler (2W) segment continue to drive TVS’ Ebitda growth superior to its peers," said analysts at ICICI Securities in a report on 6 May. The share of exports rose to 37% in Q4FY22 from 35% in Q4FY21.

Automakers are facing the heat from rising commodity costs and have resorted to price hikes. In a post-earnings call, TVS said that it took price hikes of 1.5% in Q4. Moving ahead, the company expects input costs to rise further and in response there would be further price hikes.

While this would weigh on demand, the expectations of a normal monsoon and waning covid cases mean the outlook for FY23 is positive. The chip shortage, which impacted production in its premium portfolio in Q4, is also foreseen to ease gradually.

On the electric vehicle (EV) front, its product, TVS iQube has more than 12,000 pending bookings, as per the management. It plans to expand production capacity to 10,000 units per month by the end of Q1FY23. Further, it also aims to launch electric 2W and three-wheeler in the coming quarters.

While this is encouraging, the company will have to step up its EV portfolio amid increasing competition intensity. It should be noted that TVS derives a significant portion of its revenue from ICE (internal combustion engine) scooter business which makes it vulnerable to increasing EV adoption.

“We raise our FY23 earnings per share estimate by 13% to reflect the increase in prices and some recovery in domestic demand. We maintain our FY24 estimate. We maintain our neutral rating, with a target price of Rs650 per share, as valuations fairly capture the expected strength in earnings growth and the risk of an EV disruption to its scooter business," said analysts at Motilal Oswal Financial Services in a report on 6 May.

Shares of TVS were trading flat on Friday, a day when the benchmark Nifty 50 index was down 1.6%. In the past one year, TVS’ shares have been flattish, whereas those of Bajaj Auto and Hero have declined by 11% and 13.4%, respectively.


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