TVS Motor outperforms two-wheeler peers Hero, Bajaj in Sept quarter

Sector to see volume, margin gains on demand uptick, easing supply issues

Riding on an improved show across parameters, TVS Motor (TVS) outperformed larger two-wheeler peers Hero MotoCorp (Hero) and Bajaj Auto (Bajaj) during the September (Q2 of FY23) quarter.

The Chennai-based firm, which has the most-diversified portfolio among two-wheeler majors, posted a 28 per cent jump in revenues. This compares to 18 per cent growth for Bajaj Auto and single-digit uptick for Hero MotoCorp.

Eicher Motors (Royal Enfield) had posted a 55 per cent jump but the gains came on the back of low base in the year-ago quarter.

Most gains on the revenue front came from higher realisations as a result of price hikes taken earlier. While realisation gains for TVS and Bajaj Auto ranged from 16-18 per cent that for Hero stood at 8 per cent.

Eicher Motors was the only company, which saw a fall in realisations. The metric was down 7.5 per cent year-on-year (YoY) given a weaker product mix and lower exports.

On the volume front, while Hero MotoCorp saw a marginal fall over the year-ago quarter, TVS sold 12 per cent more units in the quarter. This was aided by new launches and strong offtake. Bajaj Auto reported a 1 per cent rise in volumes on the back of a 30 per cent increase in domestic sales. This just about offset the sharp 25 per cent fall in exports. Eicher posted a strong 68 per cent growth in volumes on a lower base, while volumes gained 11 per cent on sequential basis. This was due to strong demand for its new bike, the Hunter 350.

Weakness in the economy motorcycle segment continues to hurt Hero, which lost 310 basis points (bps) market share YoY during the quarter.

While Bajaj Auto gained 160 bps market share due to an improvement in chip availability, TVS Motor saw its share rise 120 bps. This was led by gains in the motorcycle segment and improvement in the scooter mix, said analysts at Kotak Institutional Equities.

Brokerages expect TVS to continue doing well after it recovered lost market share in motorcycles during Q2. It gained 480 bps in scooters but fell to peers in the export market.

Aniket Mhatre and Sonaal Sharma of HDFC Securities expect the company’s outperformance to continue during the second half of the year. This is on the back of the ramp up in new launches, including the new Ronin, Raider and Jupiter 125.

The export segment continues to be under pressure for both Bajaj and TVS.

Overall October volumes for Bajaj declined 2 per cent over September due to stress in the export segment on the back of dollar unavailability and inflationary woes. TVS posted a 1 per cent growth (domestic and exports) largely due to the 17 per cent decline in export volumes YoY. Bajaj Auto’s management, however, expects exports to witness a sequential recovery, going ahead. TVS expects an improvement in exports during the January-March quarter of FY23. It is yet to build up its inventory given slowdown challenges, rising inflation and the foreign exchange availability situation.

On the domestic front, the volumes for Hero on the retail side have been healthy at 20 per cent growth YoY during the festive period. However, wholesales continue to remain below par with a fall of 13-17 per cent on a sequential and YoY basis in October.

Most brokerages are positive about the company, given expectation of rural revival, margin expansion as well as attractive valuations.

Mitul Shah and Sheryl Fernandes of Reliance Securities believe better product mix, regular price hike, likely revival in two-wheeler industry coupled with declining commodity cost would support Hero’s margin expansion, going forward.

Hero’s operating profit margins dipped by about 200 bps to 12.5 per cent, while Bajaj and TVS saw a 14-60 bps increase to 10.2 per cent and 21.1 per cent, respectively in Q2.

While there are near-term export headwinds for Bajaj, Jefferies Research expects a strong revival in Indian two-wheeler demand. It has raised FY23-25 earnings estimates by 5-6 per cent. This is due to slightly higher margin expectations.

Its 'buy' rating also includes Bajaj's valuations at 14 times its FY24 earnings estimates and 4-6 per cent dividend yield. Analysts believe there is more upside for the Royal Enfield business.

JM Financial Research said that with the improvement in underlying demand sentiment and product interventions, Eicher is back on the growth trajectory (FY22-25 annual volume growth estimated at 21 per cent). Softening commodity prices and operating leverage are expected to support its margins, they added.