TVS Motor Shares Climb To Record On EV, Two-Wheeler Outlook

Shares of Chennai-based TVS Motor Co. Ltd. jumped over 9% to a record high after its Q1 net profit beat analyst estimates.

The firm, one of the largest two-wheeler makers of India, posted a net profit of Rs 305.4 crore in the quarter ended June 30 compared with a loss of Rs 10.6 crore a year ago, according to its exchange filing on Thursday. Analysts' estimates compiled by Bloomberg had pegged the profit at Rs 296.8 crore.

Sequentially, its net profit rose 10%.

TVS Motor Q1 FY23 Highlights (QoQ):

• Revenue up 11% to Rs 7,315.7 crore (Estimate: Rs 5,972.4 crore)

• Operating profit rose 9% to Rs 905.3 crore (Estimate: Rs 587.8 crore)

• Operating margin was 12.4% vs 12.6% YoY (Estimate: 9.8%)

The April-June period marked the company's best-ever quarter in terms of revenue, profit and Ebitda. Overall, it sold 9.07 lakh two-wheelers, up nearly 38% from the same period last year.

Shares of the company rose as much as 9.5%, the most since Nov. 9, to Rs 953.2 apiece, before closing 4.1% on Friday. Of the 48 analysts tracking the company, 29 maintain 'buy' and 10 suggest 'hold', while nine recommend 'sell', according to Bloomberg data. The overall consensus price of analysts tracked by Bloomberg implies an downside of 4.5%.

Here's what brokerages made of the company's Q1 outing:

• Maintains 'buy' rating, raises target price from Rs 988 to Rs 1,030, implying a potential upside of 18.3%.

• The fact that TVS has been able to maintain its margin at 10% in a difficult quarter highlights the underlying business resilience. In Q1, TVS has continued to outperform scooters and gained 330 basis points share to 24.9%.

• Its 160-basis-point market share loss in motorcycles is attributable to the chip shortage impact, which has hurt TVS more than peers in Q1.

• With supply issues now resolved, HDFC Securities expects TVS to continue its outperformance relative to peers on the back of its recent new launches, including Raider and Ronin.

• Even in EVs, it seems to be ahead of its listed peers with a strong product pipeline in place over the next 24 months and it has signed up with industry experts and JV partners to emerge a leading player in the industry.

• Maintains 'reduce' rating at a target price of Rs 1,030, implying a potential upside of 37%.

• Management sounded confident on both demand and margin, double-digit margin is sustainable and expected to inch up in coming quarter due to premiumisation with ramp up in volume of Apache, Ronin, Ntorq and Jupiter 125.

• Management indicated, two-wheeler volume to see recovery led by resumption in rural demand along with potent festive season demand.

• Company is cautiously optimistic for the export market due to shortage of dollar availability and inflation challenge, however looks confident for medium term growth led by premiumization, entry into newer markets and market share gains in its key export markets.

• Margin delivery has been commendable for TVS for the last many quarters, despite the raw material inflation. Strong margin performance is attributed to solid cost reduction measures, price hike, low discounting and favorable mix.

• It seems all near term positives are priced in.

• Maintains 'hold' rating at a target price of Rs 923, implying a potential upside of 6%.

• TVS is likely to outperform the industry growth on account of preference towards personal mobility trend and decent monsoon fuelling two-wheeler demand in urban and rural areas, strength of its four marquee brands (Jupiter, Ntorq Apache and Radeon) and aggressive initiatives on EV side with the success of iQube.

• Company reported double digit Ebitda margins 5th time in last six quarters which is quite commendable.

• Management commentary about growth prospects in the domestic two-wheeler market was encouraging. At the same time aggressive plans in the EV segment with new launches and new initiatives in export markets were highly impressive.

• Maintains 'hold' rating, raises target price to Rs 1,100 from Rs 1,000, implying a potential upside of 26.5%.

• Believes Indian two-wheelers are ripe for a big cyclical revival. TVS' 1Q volumes were also impacted by chip constraints, but supply is easing.

• Export outlook has weakened, but TVS still expects to grow volumes in FY23. Likes TVS' improving franchise and rising EV focus.

• On the flip side, outlook for exports (~35% of TVS' volumes) has weakened due to local currency depreciation and cost inflation. TVS has been gaining share in exports though and expects to grow its export volumes even in FY23.

• TVS has been able to manage the sharp rise in commodity costs well through price hikes and internal cost control. The company said that it might face a slight input cost inflation in Q2, but expects commodity costs to trend flat-to-lower in the second half of the fiscal.

• Valuations appear rich but justified in our view given strong growth outlook, headroom for further margin expansion and improving franchise.

• Maintains 'buy' rating at a target price of Rs 1,023, implying a potential upside of 17.4%.

• Strong brand recall, diversified domestic portfolio, rising export mix and success in the premium two-wheelers segment have led to the company delivering 10% EBITDA margin for four consecutive quarters despite cost pressures and chip supply issues.

• With the success of iQube, TVS is targeting to ramp-up its production to 10,000 units/month by the forthcoming festive season. Company also plans to launch a diversified EV portfolio by FY25 with a few launches lined up for the coming quarters.

• Believes the much-awaited stake sale in the EV subsidiary would create opportunities for potential value unlocking, while the tie-up with BMW and ramp-up of Norton production in the U.K. would help TVS realise its global ambitions in coming years.

• Maintains 'buy' rating, raises target price to Rs 950 from Rs 930, implying a potential upside of 9.4%.

• Domestic demand outlook remains healthy on the back of normal monsoons and higher rural incomes. Positive growth to continue in export markets despite fears around currency devaluation and inflation supported by strong product offerings and new launches.

• Management highlighted strong product pipeline over FY23 for ICE and EV models.

• Believes TVS will be able to sustain growth momentum and grow ahead of the industry, driven by new product launches in ICE & EV segments along with its revamped product portfolio, strong exports and premiumisation and margin protection through cost reduction efforts and price hikes.

• Downgrades to 'accumulate' rating at a target price of Rs 928, implying a potential upside of 7%.

• Overall, on the demand front, the management reiterated that green-shoots are visible in rural, urban and semi-urban markets on the back of improving rural incomes following good back-to-back agriculture seasons (kharif and rabi) and opening up of the economy.

• Demand for premium models remains strong while chip shortage issue still remains a hindrance.

• Checks suggest that the waiting period for models like Apache and Raider remains high at 3 months in few parts of India. The company remains cautiously optimistic about exports due to issue of affordability in some markets and currency depreciation.

• On the EV front, TVS indicated that it has an outstanding order book of 20,000 units. See these steps to be in the right direction considering that the scooter portfolio (33% volume share) is vulnerable to EV disruption.

• Expect TVS to continue to outperform the two-wheeler industry and gain market share by introducing new products and timely refreshes to fill in gaps in its product portfolio.

• Sees TVS as the technology leader among its listed peers, driven by the company’s ability to launch new models and introduce industry-first features in its models. However, believes that the valuation remains rich and prices in volume growth going ahead.