Recommendation from Automobile - LCVS/ HVCS Sector

This column gives you a scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

TVS MOTOR COMPANY LTD: STORMING THE ELECTRIC VEHICLE MARKET

HERE IS WHY
✓ Domestic market share of 17.6 per cent in two-wheelers
✓ Global footprint with expanding reach
✓ Advancements in electric vehicle portfolio

The automobile sector plays a key role in both macroeconomic expansion and technological advancement. In particular, the two-wheeler segment dominates the Indian automobile market in terms of volume, owing to a growing middle-class and a huge percentage of India’s population being young. The export of total number of automobiles in 2022-23 was recorded at 4,761,487 out of which two-wheelers accounted for about 77 per cent of the total exports. Keeping the growth of two-wheelers in mind, our choice scrip for this issue is TVS Motor Company.

TVS Motor is the third-largest twowheeler manufacturer in India, with a domestic market share of 17.6 per cent in FY23. The company’s domestic sales for the third quarter in FY24 in twowheelers grew 33 per cent in terms of units – almost 8 lakhs as against last year’s 6 lakhs. In the international market the company’s sales grew by 4 per cent at 2.16 lakhs against last year 2.07 lakhs. During the quarter, the company sold 48,000 units of electric vehicles as against last year’s 29,000. The company has 3 manufacturing plants in India and one in Indonesia at Karawang The company has footprints globally, including geographies like the Middle East, Africa, Southeast Asia, the Indian subcontinent, and Latin and Central America. In Q3FY24, on a consolidated basis, its net sales rose by 25.39 per cent YoY to ₹10,113.94 crore compared to ₹8,066.13 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 1.82 per cent. The PBIDT excluding other income increased by 45.61 per cent to ₹1,487.97 crore YoY as compared to ₹1021.91 crore from the previous year’s same quarter, while sequentially it increased by 9.74 per cent.

The company’s profit after tax stood at ₹522.37 crore compared to ₹314.62 crore, a YoY increase by 66.03 per cent, while sequentially it increased by 22.46 per cent from ₹426.57 crore. The electric vehicle segment is witnessing a surge in India, and TVS is well-positioned to capitalise on this trend. Their iQube electric scooter is experiencing strong demand, and further advancements in their electric vehicle portfolio could be a major growth driver. Currently, 10 per cent of the volume comes from electric vehicles.

The company also plans to expand the dealer network from 400 to 800 by the year-end. To strengthen electric mobility, the company is planning to launch a few more new products covering 5 KW to 25 KW on the EV platform by FY24. Furthermore, it has entered the European market with a strategic partnership with Emil Frey, thereby investing in products, technology and marketing to build brands. The three-wheeler electric vehicles segment has also ramped up its production and is likely to benefit from the strategic tie-up with Amazon.

Despite potential competition and disruption from electric vehicles affecting 40 per cent of its scooter portfolio, the company is poised to maintain a competitive edge in innovation and product engineering. This trend is mirrored through its expansion into European and Latin American markets with the ‘Norton’ brand. The company is currently trading at a PE of 65 times as against the industry PE of 46.5 times. In the last three years, the company has delivered average ROE of 20.8 per cent and ROCE of 11.7 per cent. Considering the company’s business and growth, we recommend BUY.