For TVS Motor, operating profit margin and market share gains

Higher sales volumes, better product mix to help stock sustain outperformance of larger peers

The TVS Motor stock has outperformed Bajaj Auto and Hero MotoCorp, both in recent months and over one year. It has gained 17 per cent as against six to seven per cent for Hero MotoCorp and Bajaj Auto over three months on strong sales volumes led by new motorcycles Victor and Apache, even as the industry trend looks weak.

Over the year, too, the TVS Motor stock gained 52 per cent versus peers' 19-24 per cent. And if TVS continues to clock better sales volumes than its peers (analysts believe it will) then the stock's outperformance could continue.

TVS motorcycle sales are growing ahead of the industry. While sales volume this year for TVS is up over 30 per cent, the industry is lagging behind at 19 per cent. Even when adjusted for seasonal boosts, motorcycle sales appear resilient, despite demonetisation impact over the last couple of months. TVS's market share in motorcycle segment has increased 83 basis points to 7.5 per cent. In January 2017, its two-wheeler sales volumes were up 0.5 per cent year over year while Hero MotoCorp and Bajaj Auto reported a 14-16 per cent fall.

While there has been a recovery in urban markets, a revival in rural segments should help keep volume growth robust going ahead. On the exports front, a rise in commodity prices including crude oil should help the company improve sales volumes, given that commodity-producer nations are among its key customers. Export volumes (14 per cent of total sales volumes in Q3) have been impacted following a sharp decline in commodity prices and exchange-rate fluctuations.

Meanwhile, TVS has re-iterated its goal to increase domestic two-wheeler market share from 14.3 per cent to 18 per cent by end-FY18, and maintained its operating profit margin target of 10 per cent for FY18. TVS hit an operating profit margin of 7.3 per cent in Q3. Analysts at ICICI Securities say the momentum is expected to continue in FY18 and FY19.

To pass on increase in commodity prices, TVS raised rates by ~200-600 in January, and is seen as effecting another hike of ~500-1,800 in anticipation of new emission norms from April. The TVS stock is trading at a 23 times the company's FY18 net profit, which is at a premium to larger peers (17-18 times).