2W demand expected to rise even as firm’s gaining share in several segments; ‘Buy’ retained with TP of Rs 800
TVS’ Q3 volumes fell 11% y-o-y, but Ebitda and PAT grew 9-11% y-o-y (3-5% above JEFe). Ebitda margin was flat q-o-q while Ebitda/vehicle rose 5% q-o-q to a new high. We expect Indian 2W demand to recover from an abnormal trough. Moreover, TVS has been gaining share across scooters, premium bikes and exports. It is also turning aggressive on EVs, expanding portfolio and capacity. TVS shared few details on its strategy for the Swiss e-bike acquisition though. Retain Buy.
Good Q3 results: TVS’ ASP rose 6% q-o-q (+19% y-o-y) led by better mix and price hikes, driving 6% y-o-y growth in top-line. TVS delivered its highest gross-profit and Ebitda on per vehicle basis in Q3, reflecting its improving franchise. Gross and Ebitda margins were flattish q-o-q. Q3 Ebitda and PAT rose 9-11% y-o-y. Consolidated PAT at Rs 2.5 bn was 14% below standalone though. TVS invested Rs 2.4 bn in Q3 including Rs 0.5 bn in financing arm, Rs 1.2 bn in TVS Singapore and Rs 0.8 bn in Ultraviolette (electric bike start up).
Indian 2Ws at abnormal trough: Rising vehicle prices and Covid have taken a big toll on Indian 2W demand. However, we see signs of bottoming out and expect a gradual recovery from an abnormal cyclical trough. We believe urban is better placed for a rebound. TVS’ exports are holding up at ~100K units/month and company expects the momentum to sustain. The recent ban on 3W imports in Egypt could pose some risk though, in our view.
Improving franchise: TVS has been improving its franchise across multiple segments with attractive product proposition. Its market share from FY17 to 9MFY22 is up: (i) from 15% to 21% in scooters, (ii) from 11% to 19% in 125cc+motorcycles, (iii) from 16% to 24% in 2W exports and (iv) from 21% to 32% in 3W exports.
Managing cost pressures well: TVS has been able to manage the sharp rise in commodity costs well through price hikes and internal cost control, and its Ebitda margin has improved from 7-8% in FY17-19 to 10% in H2CY21. We expect further improvement to 12% in FY23-24 as 2W demand recovers, operating leverage kicks in and commodity costs ease.
Turning aggressive on EVs: TVS plans to launch new electric 2Ws/3Ws in the next 2 years. It has expanded EV capacity to 10K units/month and expects to ramp-up production by Q1FY23 as chip constraints ease. Its E2W iQube is available in 33 cities now and will be launched pan-India by end-FY22. TVS is investing ~Rs 5 bn to acquire 75% stake in Swiss e-bike maker SEMG; it had also acquired stake in another European e-bike company, EGO Movement, in Sep-2021. TVS shared few details on its strategy for these acquisitions though.
Maintain Buy: We fine-tune FY22-24 estimate and our FY23-24 EPS is 27-35% above Street. Stock is trading at a reasonable 18x FY23e PE partly on concerns of EV disruption despite TVS embracing electrification. We retain Buy with Rs 800 PT at 21x Sep-23e PE.
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