TVSL - Q1 FY22 first cut - YES Securities

Increasing EV investments | Double digit margins focus | Healthy exports outlook - Not rated

- Revenues declined 26% QoQ to Rs39.3b as volume fell 29% QoQ to ~658k units while realization grew 4.3% QoQ to Rs59.8k/unit.

- Gross margins contracted 40bp QoQ (-20bp YoY) at 24.3% as RM inflation impact would be partially offset by price hikes.

- However, negative operating leverage led to ~49% QoQ decline in EBITDA to Rs2.7b (cons Rs3.2b) with margins at 7% (cons 8.2%, -310bp QoQ).

- Higher depreciation at Rs1.43b (v/s Rs1.36b QoQ) dented adj.PAT decline by 71% QoQ to Rs833m (cons Rs1.25b).

- TVS has made total investment of ~Rs1.24b in subs during the quarter.

- Stock trades at 21x of bloom FY23 EPS. Not Rated

Call highlights

- Demand- Exports momentum to continue while domestic 2W sales to be much better from Sep/Oct. Exports markets too are witnessing premiumization. Share of premium product at 35% in 1QFY22.

- Price increase - 1.1% in 1QFY22 and 2.4% in July-21. Uncovered RM inflation is still 0.5% which should be managed through price hikes, premium mix and cost control.

- EV investment - Envisaged capex of Rs10b over next few years of which Rs3b is already spend. iQube capacity is 10k units/month and will be enhancing capacity along with new launches next year.

- Norton strategy - Products plans are under consideration and will focus on both developed and developing markets. Norton will help elevate overall product positioning of TVS.

- Confident to achieve double digit margins backed by 1) volume recovery, 2) premium mix and 3) cost control. Consol profits to also improve backed by expected improvement in subs performance.

- Additional investment of Rs1-1.25b expected in TVS credit in rest of FY22 (v/s Rs0.5b invested in 1Q). It reported net loss of Rs250m with GNPA of 5.2% (v/s 5% in 4Q).

View - TVSL's 1Q profitability hit was led by negative op. leverage as only 40bp QoQ contraction in gross margins is commendable (v/s sharp contraction from peers) given steep RM inflation. TVSL's aggressive price hikes and premium focus to help margins expansion aided by underlying volume recovery. TVSL trades at 21x FY23 bloom EPS (v/s 17.x of BJAUT/ 13x HMCL/ 24x EIM). Not Rated.

Shares of TVS MOTOR COMPANY LTD. was last trading in BSE at Rs. 579.2 as compared to the previous close of Rs. 561.5. The total number of shares traded during the day was 327956 in over 8463 trades.

The stock hit an intraday high of Rs. 604.65 and intraday low of 564.85. The net turnover during the day was Rs. 192657420.

Source : Equity Bulls

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