Why TVS has an edge over Hero | Tech Reddy

Both the two-wheeler makers are hoping for better demand for their products after the festive season. In fact, the lack of chips is a concern, but the situation is improving.

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TVS has an edge over Hero, given the return of K status in the auto industry. Premium cars are seeing an increase in production and TVS products, such as the Ronin, will help drive volume growth. The outlook for Hero, which operates mainly at the entry level, is not good especially given the subdued rural markets. Thus, while Hero loses, TVS continues to gain or maintain market share in the domestic two-wheeler segment.

Investors agree with this. The share performance of both companies reflects this difference in the demand situation. In CY22 so far, TVS shares have appreciated around 78%, while Hero has gained only 5%. This comes after a 29% gain in TVS shares in CY21 and a nearly 21% drop in Hero stock in CY21.

Weak rural sentiment will continue to be key to Hero’s stock. However, the company’s efforts to strengthen its foothold in the premium segment will help investors’ sentiments. The luxury season saw good demand for Hero’s premium variant, with its XTEC variant accounting for 20% of the sales volume. The company plans to launch more premium models here.

Coming to Q2 earnings, the Ebitda margin for both companies disappointed, missing consensus estimates. TVS saw a slight increase in margins from the previous year, while Hero’s Ebitda margin declined. Ebitda is earnings before interest, taxes, depreciation, and amortization.

Margins in the second half of FY23 are expected to benefit from lower production costs. However, financial headwinds can play spoilsport. Thus, the levers for marginal growth seem to be more for Hero than TVS.

“Hero’s margins will benefit as its flagship vehicles become operational. While TVS products are seeing expansion, its efforts to scale up the electric vehicle (EV) segment will contribute to margin performance, said Varun Baxi, analyst at Nirmal Bang Equities.

Investors prized TVS’ EV segment against its peers. Sales volume of its EV, the Qube, stood at 8,103 units in October. It has an order backlog of 25,000 units. TVS aims to deliver 10,000 units per month by the end of Q3 and 25,000 units per month by the end of FY23.

On the other hand, Hero has been a laggard, only launching its EV, the VIDA V1, last month. As it is priced at the high end of the electric two-wheeler segment, getting a comprehensive response will be difficult.

As things stand, TVS shares end about 5% below their 52-week high, while Hero stock is almost 12% down now. “It seems that all the positives in the near term are worth it,” Dolat Capital Market analysts said of TVS shares. TVS simulation is expensive and Hero offers comfort here. According to Bloomberg data, TVS trades at 29 times FY24 estimates, while Hero. trading at about 14 times. The near-term upside for the two stocks depends on how demand pans out after the holiday season.