TVS Motor’s highest quarterly Ebitda boosts stock; EV vulnerability remains

TVS Motor Co shares advanced more than 7 percent on the National Stock Exchange on October 22, with investors pleased with the company’s September quarter results.

The company’s earnings before interest, tax, depreciation and amortisation (EBITDA) margin expanded by almost 70 basis points year-on-year to 10 percent during the quarter. One basis point is one-hundredth of a percentage point.

The EBITDA margin “surprised positively, as the company was able to deliver highest ever quarterly revenue and EBITDA amidst challenging demand environment (subdued festive season) and rising commodity cost pressures,” analysts at Prabhudas Lilladher said. “The growth was driven by premiumisation, higher exports and price hikes.”

Other expenses increased at a relatively slower pace, which helped operating performance.

TVS Motor’s revenue grew 22 percent to Rs 5,619 crore from a year earlier, the company said in a statement on October 21 after market hours. Sales volumes increased 5.6 percent year-on-year to 916,705 units.

The management told analysts that festive season volumes were subdued during the Navratri period this year due to the lack of pent-up demand and muted rural sales owing to erratic rains.

Nevertheless, analysts remain upbeat on the company’s prospects, with product launches expected to support volume performance.

“We expect TVS to outperform the industry on the back of resumption of premiumisation and urbanisation trends after two years of relative underperformance, better product and segment mix, improving operating structure, and sharp earnings per share (EPS) growth,” analysts from PhillipCapital (India) said in a report on October 21.

A potential third Covid-19 wave and its impact on demand remain a risk. Investors will also have to track the impact of electric vehicle adoption.

The TVS board has approved the setting up of a wholly owned subsidiary to undertake its electric mobility business. The company had earlier announced Rs 1,000 crore investment towards development of its EV product portfolio.

“There are concerns over impact of EV adoption on scooter players in the medium to long term, but those should be allayed by formation of a separate EV subsidiary,” PhillipCapital’s analysts said.

“TVS earns about 40 percent of overall EBITDA from the domestic scooter business, making it vulnerable to an EV disruption in the listed 2W space,” Motilal Oswal Financial Services said in a report on October 22.

The TVS stock has outperformed the broader Nifty 100 index in the past month, suggesting that investors are factoring a good share of the brighter prospects. This may mean meaningful upsides are limited in the near term.

TVS Motor shares gained 7.2 percent to Rs 618.60 at the close on the NSE on October 22.