TVS Motor’s robust performance spurs investor caution

TVS Motors Q3 analysis: TVS Motor Company delivered an operationally sound performance in the third quarter of FY24, buoyed by its highest-ever earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 11.2 per cent. 

The company's revenue, EBITDA, and adjusted profit after tax (PAT) surged by 26 per cent, 40 per cent, and 68 per cent, respectively year-over-year, driven by a resilient domestic market and a gradual improvement in export demand, analysts said.

Revenue growth, bolstered by a 25 per cent year-on-year increase in volumes, underscores the Chennai-based company's strong market position and successful product portfolio.

Gross margin expansion of 220 basis points to 26.3 per cent reflects stable raw material costs, while operating leverage contributed to the expansion of EBITDA margin by 110 basis points to 11.2 per cent.

However, elevated other expenses, particularly attributed to festive season marketing spending, weighed on profitability, the brokerage firm Motilal Oswal highlighted in a note. Nonetheless, higher other income, bolstered by profit from capital reduction, propelled adjusted PAT to Rs Rs 590 crore, exceeding estimates.

Meanwhile, the management anticipates positive demand momentum in the domestic market for the fourth quarter, driven by robust growth in rural areas and favourable retail financing conditions. Despite challenges, growth prospects in urban and semi-urban regions remain promising.

Internationally, a recovery in markets is expected, although concerns persist regarding currency availability in African markets. Notably, Sri Lanka has commenced reopening, offering potential growth opportunities.

TVS Credit, a key subsidiary, witnessed a notable increase in profit before tax (PBT) to Rs 229 crore in the third quarter of financial year 2024 (Q3FY24), with a robust gross book size of Rs 25,000 crore. However, gross non performing assets (GNPA) stood at 3.1 per cent, warranting prudent risk management.

The company anticipates volume growth driven by a recovery in the domestic two wheeler (2W) market, product innovation, and export expansion. 

While economies of scale and operating leverage support sustained EBITDA margins, the company remains exposed to EV disruption, with 40 per cent of EBITDA sourced from the domestic scooter business, the brokerage firm said.

Given the above-mentioned factors, Motilal Oswal analysts maintain a ‘Neutral’ stance on the stock for target price of approximately Rs 1,880.