TVS’ 4Q EBITDA missed our estimate by 2% despite 3% revenue beat and lower employee & other expenses as gross margin disappointed again. Channel inventory at 5 weeks remains under check. The management sounded optimistic on exports remaining strong. We are also excited by the momentum in Ntorq so far.
We maintain TVS has the best earnings growth prospects in 2w but high valuations/expectations in backdrop of weak industry trends keeps us away.
TVS’ 4Q revenue was 3% ahead of our estimate due to better realisation but EBITDA missed by 2% as EBITDA margin was 33bps lower at 7% (vs estimate of 7.4%). Yet again it was gross margin which was the culprit (118 bps below expectation) even as employee and other expenses surprised positively. TVS indicated dealer inventory of 5 weeks, largely in line with normal levels of 4-5 weeks. While 1Q is expected to be weak for the industry, management is hopeful of better 2Q and 3Q. It expects momentum in exports to continue and TVS to outperform peers even there. It refrained from giving margin guidance.
We cut our FY20-21E EBITDA by 6% and EPS by 9% to reflect the weaker industry growth, weaker EBITDA margin and higher finance costs. Our price target reduces to `540 (previously `580) as we also roll forward by a quarter.
TVS has gained 3% market share in scooters in FY19 as both Jupiter and Ntorq have done well relative to most peers.
We are particularly excited by the shape of market share curve for Ntorq as it nears the critical threshold of 12-15 months post launch and believe the next few months would be critical to determining whether it is a new success.
We maintain TVS has the best earnings growth prospects in 2w industry given its strong brands in high growth segments, strong traction in exports and medium-term margin expansion potential. Even in FY19 it delivered 13% volume growth, 20% revenue growth & 24% EBITDA growth, significantly outperforming the industry.
However high valuation/expectations in the backdrop of weak macro for 2w industry keeps us on the sidelines. TVS Motor is a two-wheeler OEM in India which manufactures and sells motorcycles, scooters and mopeds. It also manufactures and sells three-wheelers. In addition to the Indian market, it also exports to multiple countries which constitute 15% of volumes.