INSUBCONTINENT EXCLUSIVE:
ET Intelligence group: TVS Motor management’s commentary for the March quarter has been quite encouraging, at a time when volume growth
estimates have been slashed at a frightening speed
However, the optimistic outlook and market share gain in the increasingly competitive two-wheeler market is unlikely to change much for the
stock, a market performer for the past three months.
The premium valuation at which the maker of the Apache motorcycle and Jupiter scooter
is trading compared with mass-markets rivals is the biggest hurdle for the stock
The stock is trading nearly 80 per cent premium to mass-market motorcycle makers
TVS has enjoyed premium valuation owing to industry-leading volume expansion and it being proxy to growth in scooters
TVS trades at 30 times its projected earnings for the next fiscal and is one the most expensive auto stocks.
The degree of premium valuation
may shrink as volume growth in the next fiscal year is expected to slow to a single digit after expanding 18 per cent in FY18 and almost 17
per cent so far in FY19.
In the first nine months of FY19, total volume grew 16.7 per cent to 30.06 lakh units
Domestic and export volume rose 12.9 per cent and 36 per cent in the same period
Domestic volume accounted for nearly 81 per cent of the total.
The company is expecting the newly launched executive motorcycle, Radeon, to
It currently gets demand for around 11,000 units a month
The company is targeting doubling the volume of Radeon
However, sustaining the targeted run-rate would be an uphill task given the competitive intensity in the market.
Scooter segment growth has
been supported by the acceptability of the newly launched Ntroq in the 125cc segment
Its domestic scooter volume grew 30 per cent and 18 per cent in the third quarter and first nine months, respectively
Consequently, TVS’ market share in scooters gained 220 basis points YoY to 18.4 per cent in the first nine months of FY19
While scooters account for nearly 40 per cent of its total domestic volumes, it may see strain here as competition is gradually picking up
in the 125cc scooter segment too
Hero MotoCorp will launch a 125cc scooter in the fourth quarter, while Suzuki and Aprilia already have their presence in the segment.
TVS
was able to withstand competitive intensity in the two-wheeler space in the December quarter because of better price realisation and a
The average selling price in the domestic and export markets rose 2.1 per cent and 5.6 per cent, respectively, in the quarter, and the
percentage of mopeds in the total domestic volume declined
These two factors helped offset the impact of higher raw material cost, and the operating margin expanded 30 basis points YoY to 8.1 per
cent.
The company has been able to pass on incremental cost to customers
It hiked prices by 0.6 per cent in the December quarter and a similar percentage in the first half of FY19.
However, pressure on margins is
likely to remain on two-wheeler makers
Anti-lock braking systems will become mandatory from April 2019, which is likely to lift the cost per vehicle for manufacturers
Vehicle makers are unlikely to pass on the entire incremental cost of regulatory changes to customers given fragile demand environment
TVS Motor is having one of the lowest margins among listed two-wheelers makers
Therefore, any emerging cost pressure makes the company’s margins more vulnerable.
