TVS Motor company’s operating performance was in line as cost pressures were diluted by a better mix, price hikes, and a favourable Rupee. Retail demand during the festive season has been strong, whereas the same in exports has started to improve.
We raise our FY23/FY24 earnings per share estimate by 5%/7.5%, led by: (i) an upgrade in volumes on supply-side improvements, and (ii) a favourable rupee. We maintain our Neutral rating, with a target price of Rs 1,000, as valuations fairly capture the expected strong earnings growth and risk of an EV disruption.
* Revenue/Ebitda/adjusted PAT grew 29%/36%/56% y-o-y
Q2FY23 to Rs 72.2 bn/Rs 7.4 bn
/Rs 4.1 bn.
* Volumes grew 12% y-o-y and 13% q-o-q to 1,027.4k units. Net realisations grew 15% y-o-y and 6% q-o-q to Rs 70.3k. Revenue grew 29% y-o-y and 20% q-o-q to Rs 72.2 bn.
* Gross margin was flat both q-o-q and y-o-y at 23.8% due to higher than estimated RM costs, which is expected to soften in 2HFY23.
* In 1HFY23, it invested ~Rs 3.2 bn on capex and ~Rs 3.9 bn in associates, subsidiaries, and on non-current investments.
Mgmt interaction highlighs
* EVs: TVS iQube electric scooter is ramping up well, with Oct’22 wholesales ~8k units. It expects a production of ~10k units in Nov’22. It is targeting 20-25k units by Mar’23. iQube has over 25k open bookings and is sold in 100 cities. Though the supply side started easing in Q2FY23, it still impacted production of Premium Motorcycles. The management expects the supply-side to considerably ease up in Q3FY23.
* Exports: Retails have started to pick up. Considering the challenges of an economic slowdown, inflation, and forex availability, it is yet to build up its inventory. It expects an improvement from Q4FY23.
* Volume growth is likely to be driven by new products (Raider and Ronin) in the domestic market as well as a ramp-up in exports. TVSL is reaping the benefits of economies of scale and operating leverage, resulting in the sustaining of Ebitda margin at double-digit levels.