TVS Motor rides strong on Q2 beat, EV plans and capex; stock up 7.5%

The TVS Motor Company stock was up over 7.5 per cent in trade on Friday after the company reported strong performance in the September (Q2FY22) quarter. While the stock lost some of its gains on Monday, its decision to set up an electric vehicle (EV) subsidiary and investments in product development and capacity expansion was viewed favourably by the Street. In addition to this, the volume outlook for both domestic and export segments is expected to improve and this can further support the stock price.   The immediate trigger has been the operating performance in Q2. Despite.....
The TVS Motor Company stock was up over 7.5 per cent in trade on Friday after the company reported strong performance in the September (Q2FY22) quarter. While the stock lost some of its gains on Monday, its decision to set up an electric vehicle (EV) subsidiary and investments in product development and capacity expansion was viewed favourably by the Street. In addition to this, the volume outlook for both domestic and export segments is expected to improve and this can further support the stock price.  

The immediate trigger has been the operating performance in Q2. Despite tough conditions, the company reported its best-ever revenue and operating profit performance. While the revenue on the back of price hikes, higher exports, and a better mix was up 22 per cent, operating profit rose 31 per cent. 

Though the demand environment in the domestic business was subdued with volumes falling 8 per cent, export sales were up 46 per cent, resulting in overall volume growth of 5.6 per cent. 

A larger share of revenue growth was on account of higher average realisations, which were up 15 per cent led by premiumisation and price hikes. The company improved its operating profit margin by 270 basis points on a sequential basis and 30 basis points over the year-ago quarter, led by higher operating leverage and one-time export incentive benefit. There were gains, even as commodity costs and employee costs were higher. 

On the demand front, sales in the current quarter were weak on a high base and rural demand was muted due to unseasonal rains. But sales are expected to improve this Diwali season amid fewer cases. The firm expects to outperform the sector on the back of fresh launches, such as the Raider 125 and the Jupiter 125. 

While improving volumes is positive, the decision to set up a subsidiary for the EV business and a Rs 1,000-crore investment is a key trigger. Its electric portfolio currently comprises the TVS iQube (available in 33 cities) which the company seeks to expand to the rest of the country by the end of the current financial year. 

The company is looking at expanding its EV capacity to 10,000 units by January next year and scaling it up further in FY23. Volume growth aided by fresh launches should boost sales in the domestic/export market, resulting in improving operating leverage and margin. However, analysts led by Jinesh Gandhi of Motilal Oswal Research highlight that 40 per cent of overall operating profit comes from the domestic scooter business and that makes it vulnerable to an electric vehicle disruption in the listed two-wheeler space. 

The valuation at 22x its FY23 earnings estimates captures the upsides, according to brokerages. Investors should await a better entry point.



Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel
Key stories on business-standard.com are available to premium subscribers only.

Already a premium subscriber?

Subscribe to get an across device (Website, Mobile Web, Iphone, Ipad, and Android Phone applications) access to Premium content, Breaking News alerts, Industry Newsletters, Stock and Corporate news alerts, access to Archives and a lot more.

Read More on

TVS MOTOR COMPANY

STOCKS

ELECTRIC VEHICLES

Q2 RESULTS

COMPANIES

FINANCIAL X-RAY


Most Read

Markets

Companies

Opinion

Latest News

Todays Paper

News you can use