TVS Motor vrooms past Hero MotoCorp to be 6th most-valued auto company

Maruti Suzuki India remained India's most valued auto company, followed by Mahindra & Mahindra Ltd, Tata Motors Ltd, Bajaj Auto Ltd and Eicher Motors Ltd.

Investors continue to buy shares of TVS Motors amid its consistent market-share gains and margin outperformance compared to its peers. Analysts believe TVS will keep on delivering superior earnings growth compared to other two-wheeler original equipment manufacturers (OEMs) due to a combination of new models, revenue diversification as well as its commitment to electric vehicles. The demand to remain strong at least till the festive period in September-October, led by the premium segment, they said.

TVS has widened its market share across multiple segments over FY17-22 with various attractive models. In scooters, its market share increased to 21 percent from 15 percent; in 125 cc+ motorcycle segment, it jumped to 18 percent from 11 percent; and in exports the pie widened to 25 percent from 16 percent. Three-wheeler exports from the TVS stable climbed 33 percent from 21 percent during this period.

The company has lined up a series of new models for the next few quarters to drive demand, led by customer pull for new and feature-rich products. In its June quarter earnings, TVS said it remains cautiously optimistic on export demand and expects to outperform the industry growth.

"We expect TVS's earnings to more than double over FY22-24, led by revival in Indian two-wheeler demand from an abnormal trough and further margin expansion amid easing commodity prices. Our FY24 EPS is 16 percent above the street. TVS's 34x/22x FY23/FY24 PE appears rich but is justified, in our view, given strong earnings growth outlook and improving franchise. Risk of lower share in EV versus ICE scooters has been a key concern, which should be mitigated with rising EV volumes; we see a potential for stock valuations to expand if TVS is able to garner a similar", said Jefferies India in its recent report.

"Its EBITDA margin has expanded to 10 percent in the last four quarters versus 12 percent for Hero MotoCorp and 16 percent for Bajaj Auto. Its EBITDA per vehicle has also risen to Rs 6,400 — just 10 percent below Hero and now 49 percent below Bajaj. TVS's EBITDA share in its peer group has more than doubled from 6 percent in FY17 to 13 percent in FY22," Jeffries India report added.

The share performance of Hero MotoCorp remained muted since the start of this year amid continued dropping market share. Analysts attributed this to the headwinds in the entry-level two-wheeler segment. Hero MotoCorp's relatively higher ownership costs owing to high fuel costs and multiple price hikes by OEMs, and muted demand in rural areas have impacted the sales of entry-level models, analysts said.

Hero MotoCorp has recently lost its top spot in two-wheeler sales to Honda Motorcycle and Scooter India. The company is concerned about its dropping sales and to arrest this it launched electric vehicle Vida V1. However, analysts see the vehicle as an expensive one compared to its peers. Analysts are now cautious and awaiting response on its newly launched electric vehicles.

"We maintain a 'hold' rating on HMCL amid muted volume recovery prospects in two-wheeler segment, HMCL’s focus to target the premium segment in EV space through its offering under brand Vida with premium pricing despite being a mass market mother-brand and slower than anticipated rollout pan India," ICICI Direct in its recent report.