TVS Motor runs ahead of Bajaj Auto | Tech Reddy

TVS Motor runs ahead of Bajaj Auto

 | Tech Reddy


The revenue for the June quarter (Q1FY23) of two-wheeler company TVS Motor Co. Ltd and Bajaj Auto Ltd indicate that FY23 has started on a positive note, amid commodity headwinds and chip shortages. Both automakers announced their results last week, and said they expect the bottlenecks seen in Q1 to ease gradually.

Currently, TVS has an upper hand compared to Bajaj. Both companies maintain domestic demand in recovery mode; however, they see other export markets under pressure, mainly due to the devaluation of their local currencies, and economic pressures in parts of Africa. This will weigh heavily on Bajaj’s earnings, as exports accounted for 58% of its total volumes in FY22 vis-a-vis around 38% for TVS.

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Against this backdrop, Jefferies India expects Bajaj’s export share to rise to 53.6% and TVS’s export share to fall to 35% in FY23. Note that the export business has a high margin.

On the supply side, chip shortages continue to limit the auto industry’s ability to produce enough vehicles. At TVS, production of primary products such as Apache was hurt in Q1, resulting in a market share loss of 200 basis points (bps) in the domestic motorcycle segment to 6% vs FY22 levels, Jefferies said.

Bajaj saw the worst impact of the crisis, with around 40% of its production affected in Q1. This means a reduction in channel stock, resulting in a Q1 market loss of 500bps in the domestic motorcycle segment to 13% from FY22 levels.

However, both have a new chip supplier on board, and the situation may be better in the future. But this will have a negative impact on Bajaj’s product mix, as the company prioritized premium models in Q1 due to supply issues, which will reverse as the situation improves in the coming quarters, said Kotak Institutional Equities analysts. This time, TVS will have a higher mix of premium brands.

Further, reduction in commodity costs is welcome and depreciation of the rupee is helping the export industry. But high energy costs remain a concern. Q2 is expected to see a small impact of inflation, but from Q3, there should be a relaxation. However, for TVS, the margin delivery has been able to withstand. In Q1, it managed to maintain its Ebitda margin at 10%, while Bajaj reported a sequential decline of 90bps in the ratio.

In terms of electric vehicles (EV), TVS is ahead of Bajaj with Q1 sales of 8,724 units of i-Qube vis-a-vis over 6,200 units of Chetak. TVS sells EVs in around 85 cities while Bajaj EVs are only available in 27 cities. TVS aims to increase the capacity to 10,000 units per month in the near term.

But the increase in the adoption of EVs may affect TVS domestic ICE (internal combustion engine) scooter portfolio, which is a big risk as this segment is about 34% of its total volumes in Q1. “Though this is a threat, it cannot be considered a big deal for TVS given the ramp-up of its EV portfolio, which could help in a smooth transition from ICE to EV scooters. But so far, Bajaj Auto’s ICE portfolio remains safe from it any EV disruption yet, because there is no big push yet for EV motorcycles,” said Aniket Mhatre, research analyst at HDFC Securities.

Investors seem to have taken note of the aforementioned factors, as shares of TVS are up nearly 45% in CY22 so far, while shares of Bajaj are up 20.5%. According to Bloomberg data, shares of TVS and Bajaj trade at 25 times and 17 times estimated FY24 earnings, respectively. Both companies are flirting with 52-week highs, which could be meaningful in the near term.

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