TVS operated at significantly lower margins versus peers through most of the last decade, as it had a weak presence across most 2W sub-segments, point out analysts at Jefferies India

TVS Motor Co. Ltd is growing rapidly in the electric vehicle (EV) segment, outperforming listed incumbents. According to Vahan registrations, the automaker’s electric two-wheeler (e-2W), iQube, has clocked registrations of over 3,600 units in August so far, which makes it the third top company in the e-2W segment with 14% market share.

Of course, the new entrants are leading the race but TVS is steadily bridging the gap. For perspective, TVS’ e-2W market share in June stood at 5%.

Moreover, its continuous efforts to improve the margin have paid off. TVS operated at significantly lower margins versus peers through most of the last decade, as it had a weak presence across most 2W sub-segments, point out analysts at Jefferies India.

“TVS’s Ebitda margin averaged just 6.4% in FY10-17 versus 15%/20% for Hero MotoCorp Ltd/Bajaj Auto Ltd; its average Ebitda/vehicle at Rs2,300 was 60%/77% below Hero/Bajaj," said analysts at Jefferies in a report on 18 August. Ebitda is short for earnings before interest, tax, depreciation and amortization.

“Its Ebitda margin has expanded to 10% in the last four quarters versus 12%/16% for Hero/Bajaj; its Ebitda/vehicle has also risen to Rs6,400 — just 10% below Hero and now 49% below Bajaj," added the report.

The company has also gained market share in various sub-segments over the years. According to Centre for Monitoring Indian Economy, in the scooters and 125cc+ bikes segment, TVS’ market share was 15% and 11% in FY17, respectively. This has increased to 21% and 18% in FY22, respectively.

To be sure, TVS’ domestic internal combustion engine (ICE) scooter portfolio is vulnerable to the increasing penetration of EVs as this segment constituted almost 37% of its total volumes in July. But rising EV volumes could help offset this. “We see a potential for stock valuations to expand if TVS is able to garner a similar market share in EVs as in ICEs," added the Jefferies report.

Shares of the company have rallied 56.5% in calendar year 2022 so far vis-a-vis 25% and 17% appreciation in Bajaj Auto and Hero MotoCorp’s shares, respectively.

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