TVS Motor gets on the fast lane


TVS Motor



The TVS Motor stock has been hitting successive 52-week highs on strong volume performance in September and market share gains in the two wheeler space. In addition to the sales, the company is expected to post strong September quarter results. And, the road ahead, too, is looking good.

Volumes in September month for TVS Motor were up 23 per cent year-on-year, led by a 43 per cent increase in scooter despatches. Scooters account for 34 per cent of the company's volumes currently. The increasing scooterisation being witnessed by the industry is expected to help TVS gain on the volumes and market share fronts. Share of scooters in two wheeler industry's volumes increased by 400 basis points year-on-year to 34 per cent in the June quarter led by the southern region. Scooters now account for 45 per cent of two wheeler sales in this region. For TVS Motor, its market share in the scooter segment increased by 50 basis points year-on-year to 13.8 per cent. The scooter portfolio of TVS consists of Wego, Jupiter, Scooty pep+ an Zest.

What is also helping the company is strong sales of motorcycles, three wheelers and exports. While three wheeler sales were up 54 per cent, motorcycles volumes increased 17 per cent and exports increased 33 per cent in September month, compared to the year ago period. Analysts expect the company to outpace industry growth on the back of new products (300cc motorcycle and a new scooter) and refreshes in the second half of the current fiscal.

After a single digit growth in the June quarter, the sector's double digit growth in the September quarter has also led analysts to revise upwards their volume estimates for the company and industry. The rebound in two wheeler sales helped the company post 16 per cent volume gains for the September quarter.

Analysts at Kotak Institutional Equities say that the company is one of three auto makers (others being Ashok Leyland and Eicher Motors) which are expected to outperform in the September quarter. Revenue growth for the company could come in at 20 per cent year-on-year given better sales mix, while improvement in average selling prices are led by higher margin spare parts and three wheelers.

Even more than the volume and revenue gains, the street will be watching out for TVS' margin trajectory going ahead. Analysts say margins in the June quarter at 6.2 per cent was impacted by GST-related dealer compensation and higher discounts to clear inventory. Volume uptick coupled with an improved product mix, be it the launch of a 300 cc motorcycle and higher sales of established brands Apache and Jupiter, should help improve margins.

Analysts at Sharekhan expect the company to report operating profit margin of 8.3 per cent and 9.8 per cent in FY2018 and FY2019, respectively.