Notwithstanding the important commodity headwinds, record 4Q FY21 EBITDA shocked the Street positively. Improved brand acceptance, diversified revenues and robust R&D capability provide extended-term defensiveness. Strong and constant margin efficiency drives our improve in TP to Rs 650 (from I`580).
Scaling new heights. TVS’s margin efficiency has shocked the Street positively for the fourth consecutive quarter, with EBITDA margins of 10.1% in 4Q FY21 (vs Street expectation of 8.5%). The double-digit milestone was accomplished for the initially time in more than a decade.
This is specifically noteworthy, in light of the important improve in commodity rates by means of the quarter. The firm has been in a position to pass on the expense improve by means of frequent and calibrated price tag hikes which, in our view, is on account of enhanced brand acceptance and a robust item portfolio.
The 3 crucial brands — Apache, Jupiter and Ntorq -have visibly enhanced the positioning for TVS, in our view. We also count on item mix improvement more than the medium term, backed by robust R&D capability and item interventions. 4Q21 also marked record 2W exports with volumes in March crossing 100K units for the initially time (compared to an typical of c30K units in FY16 and 50K units in FY20). Exports contributed to 35% of total volumes in 4Q21 versus 26% in 3Q21 – partly assisting the robust margin efficiency as effectively.
A developing export footprint and recovery in 3Ws need to add to the defensiveness of the firm. While the rise in COVID-19 instances in the domestic industry remains a crucial threat in the close to term, the export exposure need to cushion any short-term effect.
4Q FY21 update: TVS reported largely in-line revenues of`53bn (vs consensus expectation of Rs 52bn). Average promoting price tag was up 5.3% q-o-q led by a greater mix and price tag hikes. The firm took a additional price tag hike of c1.6% in April to offset the impending commodity headwind of c190bp in 1Q22e. Cost efficiency measures and mix helped margins in 4Q21 to the tune of 100bp as per management. Positively, robust FCF generation in FY21 resulted in a net debt reduction of Rs 14.5bn.