While TVS Motor outperformed the sector in the September quarter, it was not a great start to the festival season. The company indicated that the sales in the current month were moderate and expects the same to improve in the run-up to Diwali on November 7. With the Diwali part of the season accounting for over 70 per cent of the sales during the festival period, the street will keep an eye on how two-wheeler sales move during the next fortnight.
The street’s bearish stance on the two-wheeler stocks can be gauged from the 25-32 per cent fall the stocks have witnessed from their highs over the last year. While the sector is beset with issues including regulatory changes, stiff competition and higher raw material costs, TVS Motor has fallen the most given worries on ability of the company to improve its margins and the volatile profitability profile.
The stock on Tuesday, however, saw some relief gaining 3.75 per cent. The company’s September quarter results were above expectations on most parameters. As compared to the domestic two-wheeler sector growth of 5 per cent in the September quarter, TVS managed to grow its volumes at more than double that rate. While the company believes the sector’s growth in the second half of the financial year will come down it expects to outperform the industry given its product portfolio and improving rural demand on the back of normal monsoons and policy support for the rural sector.
The other key issue for the stock would be an improvement in operating profit margins, especially in the context of rising raw material costs. The impact of the same was visible as margins declined by 30 basis points year on year to 8.6 per cent. Cost rationalisation efforts, however, helped offset the input cost pressures. The is taking steps to neutralise the impact of higher costs by taking price hikes. After a 1 per cent hike in the first half of the financial year, the company hiked prices again in October. If the company is able to maintain or improve margins amid multiple headwinds it will be seen as a positive by the street.
While the company expects to outperform peers in the current financial year, the extent of the outperformance, as well as margin gains, would decide the outlook for the stock.