Home >Markets >Mark To Market >TVS Motor's resilient Q1 show drives up stock

TVS Motor Company managed a decent show in the June quarter despite covid-led disruptions and rising commodity prices. Robust exports helped the company tide over soft domestic sales, while price hikes, better product mix, among others, offset the impact of rising commodity prices.

Not surprising then that the stock surged over 7% in early deals on Friday

TVS Motor's two-wheeler and three-wheeler sales, including exports, stood at 6.58 lakh units for the quarter ended June, up from 2.67 lakh units sold in the year-go period. Though lower than sales of 9.28 lakh units clocked in January-March, the decline was on expected lines given the impact of the pandemic-induced curbs. The company recorded its highest two-wheeler exports during the quarter under review at 2.90 Lakh units.

Improving realisations, meanwhile, boosted revenues. At about 59,800 a unit, average realisations were up 11.5% year-on-year, and also better than about 57,400 in the previous quarter, as per analysts' calculations.

Thus revenues at Rs3,934.4 crore came better than the Street's expectations. Analysts at Motilal Oswal Financial Services expected revenues at Rs3,792.7 crore.

The company fared well on the operating front as well, beating estimates, halped by higher exports and realisations, product mix. Gross margin contraction was restricted to 40bps sequentially and 20bps year-on-year to 24.3%. This was better than estimates of 23.5% by analysts at MOFSL. Ebitda at Rs273.8 crore too was ahead of their estimates of Rs269.6 crore. Ebitda is earnings before interest, taxes, depreciation, and amortisation.

Analysts are positive about the company's prospects.

"TVS has been able to manage the sharp rise in commodity costs well through price hikes and internal cost control. It has taken an additional 2.4% price hike in July and expects just 50bps of net commodity pressure, which it intends to manage through cost controls. We expect Ebitda margins to improve in balance FY22 as operating leverage kicks in and commodity cost pressures peak out," said analysts at Jefferies India Pvt Ltd. They factor in Ebitda margins of about 11% in 2HFY22/FY23 which is better than 8.5% seen in FY21

The outlook on exports also remains strong, with demand from Nepal, Bangladesh coming on stream.

TVS Motor has also turned aggressive on electric vehicles (EV). Its EV capacity is seen at 10,000 units/month by 4QFY22, with further expansions thereafter. It has has set up a separate vertical for EVs and plans to invest Rs10,000 crore for building of a product portfolio, among other things.

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