Future is electric, but TVS needs a sales recovery now

20 Dec , 2021 By : Kanchan Joshi

TVS Motor Co. Ltd’s shares fell 24% from their 52-week high seen on 9 November on the NSE. Lacklustre sales performance in the festival season is a key factor for subdued investor sentiment. Further, analysts reckon the stock has also seen a sharp run-up, perhaps in anticipation of a big announcement.

There is a general worry about the impact of electric vehicle (EV) adoption on TVS. Last week, the company announced deepening its longer-term partnership with BMW Motorrad with the joint development of new platforms.

Credit Suisse’s analysts said, “We view this as a positive development for TVS as it adds to its armoury and deepens its technology know-how and breadth of R&D towards EVs, given BMW has had a meaningful effort of its own towards developing electric two-wheelers (BMW looks to launch a premium E2W in early 2022)."

“Incrementally, we will look to learn the finer details of what this partnership would entail, including the number and kind of models and platforms they will look to develop, the timeline of launches, the price points they will look to meet and the further capex and investment it will need from TVS," the analysts said.

TVS and BMW first signed their long-term strategic partnership in April 2013 to manufacture for global markets. Under this collaboration, they have developed three products on the 310cc platform. The partnership now is not restricted to one or two products but the entire platform that will include multiple product developments, point out analysts.

To be sure, TVS’s near-term prospects hinge on two-wheeler demand recovery in India. In November, domestic two-wheeler sales fell by 29% year-on-year due to weak demand, although exports rose 30%. The upshot: TVS’ two-wheeler sales in November fell by 17%. Weak rural demand due to delayed monsoon and harvesting contributed to the weakness in sales. In addition, the high cost of ownership led by price hikes and high fuel prices have impacted urban demand.

A rural recovery on the back of healthy kharif sowing and acreage should help, and new product launches could drive urban sales. Sharekhan expects annual average earnings growth of 51.9% during FY21-23E, led by a 22% increase in revenue, with expansion in margins.

TVS Motor’s investors are sitting on nearly 27% appreciation in the stock so far in 2021, suggesting investors are factoring in some of the benefits mentioned above.