TVS has to burn rubber in volumes | Tech Reddy


Among the two-wheeler (2W) contenders, TVS Motor Co. Ltd held the highest market share of 4.3% in the electric vehicle (EV) segment in FY22, according to Vahan registration data. The company’s market share in the high-speed electric scooter segment was 19%, according to the FY22 annual report. Overall, EV adoption is increasing with new entrants gaining significant market share.

Bhavish Aggarwal, CEO of Ola Electric, which has a market share of 6.2% in the EV segment in FY22, recently said that he believes that India will not sell any petrol 2Ws by the end of 2025. Such rapid entry of EVs will pose a huge risk to TVS as it derives a major portion of its revenue from the internal combustion engine (ICE) scooter segment.

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Analysts think Aggarwal’s vision is too optimistic, given the barriers to EV adoption. Charging infrastructure is yet to be widely established, which has led to a range of concerns. Also, recent cases of 2Ws of electricity (e-2W) catching fire have added to the fear.

In any case, TVS has started its e-2W journey well. “TVS Motor has a broad approach in the EV segment as it operates across the ecosystem through partnerships with its group companies. Therefore, any reduction in ICE scooter volumes will be offset by an increase in the company’s EV volumes,” said Kumar Rakesh, automotive and technology analyst at BNP Paribas Securities. Overall, TVS gained market share in the 2W segment in FY22 as compared to FY21. .According to the Association of Automobile Manufacturers of India, TVS’s domestic and export market share increased by 90 basis points (bps) and 120 bps to 15.2% and 24.5% respectively. amid higher inflation and a better product mix. In FY22, the Ebitda margin stood at 9.4%, up 90 bps year-on-year (yoy). On the other hand, Bajaj Auto Ltd and Hero MotoCorp Ltd saw a 190 bps and 153 bps decline. The average of Ebitda, respectively. However, the increase in investment in FY22 means free cash flow. TVS reported about 3.3 times its increase in investment in subsidiaries and partners 1,355.43 million. So, TVS saw free cash flow 630 million.

“Further increases in investment and weak revenue metrics for acquired entities remain a concern. The firm remains optimistic about its current investment. However, the profits of the Swiss E-Mobility Group, as well as those of the original motorcycle equipment manufacturers, remain uninspiring,” said Kotak Institutional Equities analysts in a report on June 20. Swiss E-Mobility is a subsidiary of TVS.

TVS is optimistic about the business outlook in FY23 in view of the expected recovery in rural demand and growth in urban demand as restrictions ease. Furthermore, commodity prices such as steel and aluminum are soft and this bodes well for margins. Meanwhile, TVS shares have appreciated by nearly 21% in the past one year, beating Bajaj Auto and Hero MotoCorp, whose shares have declined by around 13% and 14%, respectively.

According to Bloomberg data, TVS stock trades at nearly 22 times FY24 estimated earnings while Bajaj Auto and Hero trade at 16 times and 13 times respectively. According to Kotak, reversing the reduced cash flow rates means a 25% market share in the domestic 2W segment, much higher than current levels. They believe that achieving this is a difficult task for the firm and hence they have a Sell rating on the stock. Sustained volume growth will remain key. Note that TVS’s total 2W volumes for April and May 2022 were down 5.5% vis-a-vis 2019 levels.

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