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2024-07-10 14:31:00 +0300

TVS Motor to ride strong on profitability gains in FY23: Brokerages

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Business Standard
By Ram Prasad Sahu

Expectations of margin expansion, straddling volume recovery, lower raw material prices, improvement in market share, and increased focus on electric vehicle (EV) product portfolio, are key triggers for India’s third-largest listed two-wheeler maker — TVS Motor Company.

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These triggers have led to brokerage upgrades in the recent past and are reflecting in its stock price, up 15 per cent over the past fortnight. One of the key positives for the company is the scope for margin expansion.

IIFL Research highlights that metal prices have corrected 25-35 per cent, are now lower than the fourth quarter of 2020-21 levels, and will act as a tailwind. Companies are expected to retain most of the price hikes taken in the recent past and will benefit from sliding input costs.

Analysts of the brokerage, led by Joseph George, highlight that low-margin automotive (auto) makers have a higher earnings sensitivity to changes in the operating profit margin. Should input costs fall, low-margin companies like TVS Motor may see higher earnings per share (EPS) upgrades.

At sub-10 per cent, TVS Motor has the lowest margins in the listed two-wheeler peer set. IIFL has revised its EPS estimates for TVS Motor by 20-21 per cent for 2022-23 (FY23) and 2023-24 (FY24) — the highest across its coverage of automakers.

A richer product mix and premiumisation are other factors that could help drive margins. Despite higher input costs which went up 24 per cent in 2021-22 (FY22) for the company, TVS was able to expand its margins by 90 basis points (bps). In addition to prudent cost management and price hikes, a higher share of exports had helped the company.

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