Q4FY23 Review TVS Motor: Steady Q4; Negative FCF, subsidiaries' losses continue

5 May 2023 , 11:14 AM

TVS’s Q4 EBITDA beat IIFL estimate by 9%, but was largely in line with Street estimates. The beat was a result of incremental input cost benefit (not built in IIFL’s Q4 estimates), which offset adverse mix (built in estimates). Since IIFL Capital Services’ margin forecast for FY24/FY25 is already higher than reported Q4 margin, their EPS projections are unchanged. Management commentary indicated that urban demand is strong but rural remains weak.

In recent years, TVS has done a good job gaining market share across segments, and delivering better margin performance compared to peers. TVS has gained market share in domestic 2Ws, with successful ramp-up of new models. TVS is the 2^nd largest player in domestic EV 2Ws. TVS has also gained substantial market share in export of 2W/3W from India. TVS’ current margins are higher than pre-COVID levels, whereas all other OEMs are still below pre-COVID peaks.

However, high valuations (30x FY24 EPS) do not factor in following negatives/risks: i) inferior cash-flow profile due to sharp increase in capex and investments, ii) subsidiary losses, which drag down consolidated earnings, iii) uncertain “path to profitability” of the EV business once FAME subsidy stops (likely in April 2024).