TVS Motor: Volume boost in festive season yet to take shape

Firm banking on strong portfolio, rural growth to outperform sector

While TVS Motor outperformed the sector in the September quarter (Q2), it was not a great start to the festival season. The firm indicated that sales in the current month were moderate, and expects the same to improve in the run up to Diwali on November 7.

With Diwali accounting for over 70 per cent of the sales during the festival period, the Street will keep an eye on how two-wheeler sales move during the next fortnight.

The Street’s bearish stance on two-wheeler stocks can be gauged from the 25-32 per cent fall the stocks have witnessed from their highs over the last year.

While the sector is beset with issues including regulatory changes, stiff competition, and higher raw material costs, TVS Motor has fallen the most, given concerns regarding the ability of the company to improve margins and the volatile profitability profile.

However, the stock on Tuesday saw some relief, gaining 3.75 per cent. The company’s September quarter results were above expectations on most parameters. As compared to the domestic two wheeler sector growth of 5 per cent in Q2, TVS managed to grow its volumes at more than double that rate.

While the firm believes the sector’s growth in the second half of the fiscal year will reduce, it expects to outperform the industry. This is due to its product portfolio, and improving rural demand on the back of normal monsoons and policy support for the rural sector.

The other key issue for the stock would be an improvement in operating profit margins, especially in the context of rising raw material costs.

The impact of the same was visible, as margins declined by 30 basis points year-on-year to 8.6 per cent. Cost rationalisation efforts, however, helped offset the input cost pressures. The company is taking steps to neutralise the impact of higher costs, through price hikes. After a 1 per cent hike in the first half of the fiscal year, the firm hiked prices again in October.

If it is able to maintain or improve margins amid multiple headwinds, it will be seen as a positive by the Street. While the company expects to outperform peers in the current fiscal year, the extent of outperformance and margin gains will decide the outlook for the stock.

The TVS Motor stock saw some relief on Tuesday, gaining 3.75 per cent