TVS Motor Company's (TVSM) Q2FY22 operating performance was a beat to consensus estimates as EBITDA margin came in at 10% (up 68bps YoY) even as ASP jumped 15.5% YoY (~Rs61.3k/unit) driven by mix and price increase (~1.1%) coupled with cost reductions leading to strong gross margin performance (up 61bps YoY). TVSM has undertaken price hike of ~1.1% in Oct'21 and remains confident on double digit margins. Management continues its focus on growth based on customer-centric product innovations, brand building and R&D coupled with highest EV investments among incumbents. We believe EV subsidiarisation creates easier pathway for potential value unlocking to scale up its EV business, and realise TVSM's global ambitions (e-mobility brand EGO Movement acquisition is part of the same strategy). Maintain BUY.
- Key highlights of the quarter: Standalone revenues were up 22% YoY to ~Rs56.2bn with EBITDA margin at 10% (up 68bps YoY). Gross margins held up well (up 61bps YoY) amidst rising input costs thanks to superior mix, price increases (~1.1%) and cost reduction efforts. Employee costs remain sticky (up 61bps YoY). Standalone adjusted PAT rose 41.5% YoY to ~Rs2.8bn.
- Key takeaways from earnings call: Management indicated: a) TVSM to create a new subsidy for EV mobility products; it will incur capex of Rs10bn towards building an electric portfolio, capacity expansion and market development; capacity to be raised to 10k units/month from Jan'22 and to be expanded further "aggressively" in FY23; b) Capex for FY22 is expected at Rs7.5bn-8bn with Rs5bn already spent in H1FY22; c) TVSM received a RoDTEP benefit of 40bps for previous quarters and 25bps in Q2; for Q2, export revenues stood at Rs18.34bn and spares revenue at Rs6.4bn; d) TVS Indonesia reported sales of 28.5k 2Ws and 2.4k 3Ws; d) TVS Credit Services grew to a book size of ~Rs114.2bn, PBT of Rs351mn, collections of Rs24bn, and net worth of Rs16.6bn; e) Its EV offering (iQube) is currently present in 33 cities and plans to expand it nationwide coverage by Q4FY22; also plans to launch new EVs; f) in H1FY22 has invested Rs1.2bn/1.4bn for Norton/EGO Movement, and has invested (strategic) Rs1.3bn in TVS Supply Chain (2-3% stake).
- Maintain BUY: We continue to like TVSM's capability of delivering industry leading growth on the back of strong product offerings. Aggressive capital deployment into EVs and a portfolio of products reflect well on its confidence to scale up manufacturing. We raise our standalone earnings by 9.1%/6.7% for FY22E/FY23E. We roll over to Sep'23E and value TVSM's standalone business at an unchanged multiple of 24x Sep'23E EPS and TVS Credit Services at 1.0x trailing BV to arrive at a target price of Rs876/share (earlier: Rs719/share). Maintain BUY.
Shares of TVS Motor Company Limited was last trading in BSE at Rs. 620.00 as compared to the previous close of Rs. 576.55. The total number of shares traded during the day was 610189 in over 16267 trades.
The stock hit an intraday high of Rs. 632.85 and intraday low of 599.20. The net turnover during the day was Rs. 377039047.00.