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Fundamental Analysis Of TVS Motor: Auto industry’s woes started even before Covid-19 hit. The autocycle was already struggling, and then the pandemic struck. This pushed the whole Indian automobile and auto ancillary industry further towards the cliff.

But throughout this downturn, a few auto & auto-ancillary companies kept growing. In this article, we will attempt to perform a fundamental analysis of one such auto company: TVS Motor Company Ltd.

We will start with a company description, and then move on to get an overview of the automotive industry. After that, we look at the revenue figures and segments of TVS Motor Company followed by its return ratios and leverage ratios. Later, a section is devoted to the future plans of the company. A summary concludes the article in the end.

Fundamental Analysis of TVS Motor

In this fundamental analysis of TVS Motor, here we have presented In-depth information on the company overview, revenue, future plans, metrics, and much more.

Company Overview

Today, TVS Motor has a global presence in geographies such as the Middle East, Africa, SE Asia, the Indian subcontinent, and Latin & Central Americas. It is the third largest Indian 2-wheeler company with a production capacity of more than 4.95 million vehicles.

The company is also the 2nd largest exporter with its products being sold in 60+ countries.

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Along with 2-wheelers, TVS also manufactures and sells 3-wheelers. Its 3-wheelers annual production capacity stands at 1.2 lakh.

The company owns four manufacturing plants out of which three are in India and one is in Indonesia. It has a diverse product portfolio of 2-wheelers from mopeds, to scooters, and commuter motorcycles to racing-inspired bikes as well.

Having known about the company, let us now move ahead to the industry overview as part of our fundamental analysis of TVS Motor.

Industry Overview

The whole automotive industry in India has seen negative growth in the last 5-6 years. The 2-wheelers and 3-wheelers segments have been no exception. Presented below are the production numbers of 2-wheelers and 3-wheelers in India.

Year2-Wheelers3-Wheelers
2016-1719,933,739783,721
2017-1823,154,8381,022,181
2018-1924,499,7771,268,833
2019-2021,032,9271,132,982
2020-2118,349,941614,613
2021-2217,714,856758,088

The data above from the Society of Indian Automobile Manufacturers (SIAM) points to the last three tough years for the auto industry as seen as a whole.

As for the domestic sales trends, the picture is worse. Domestic sales of 2- wheelers declined from 17,589,738 units in FY 2016-17 to 13,466,412 units in FY 2021-22. As for the 3-wheelers segment, it dropped to 260,995 from 511,879 during the same period. 

But it is not as dismal as it looks. There are green patches as well.

Over the last year, the international 2-wheeler industry grew by 36% turning it into the best year for Indian auto exporters. Similarly, overall 3-wheeler small passenger vehicle sales increased by 31% as domestic sales saw a growth of 65% and exports by 26% respectively. 

The electric 2-wheeler industry is another segment witnessing rapid growth. For instance, the industry scaled 5.6x over the last year as customer focus shifts to climate impact and total cost to operation perspective as fuel prices increase.

Market experts say that after years of drought, the Indian auto industry is at the cusp of a boom as demand is back. Going forward, rising disposable incomes, better monsoons, easing inflation, stable fuel prices, and commodity cost decline will bring growth to the automotive industry in India.

Segment-wise Revenue

As we inch ahead to know the company’s past performance, let us race through this section devoted to revenue segments of the company.

The table below presents the segment-wise revenue of TVS Motor Company.

Segment-Wise Revenue(Rs. Cr.)% Share
Two-wheeler sales16,26168%
Three-wheeler sales1,7317%
Parts and accessories2,39510%
Interest income of the financial enterprise2,44710%
Others9344%
Total23,767100%

The next table below tells us the geographical diversity the company has for its products and services.

Geographical Markets(Rs. Cr.)% Share
Domestic16,09768%
Exports7,67132%
Total23,767100%

We can conclude that 2-wheeler sales form the primary revenue stream for the company. Additionally, the company is adequately diversified between domestic and export markets to take advantage of growth opportunities across the globe.

TVS Motor – Financials

Revenue and Net-Profit Growth

Fundamental Analysis Of TVS Motor Company - Financial Chart

Talking about the growth of the TVS Motor Company, it has been impressive over the last 6 years. The company has increased its revenues at a CAGR of 11.81% every year since FY17 even as different segments of the Indian automotive industry saw degrowth or no growth at all.

Although the net profit grew at a minimal pace, the performance of the company is still commendable as it reported profits and was able to service its debt in all the years. Many other companies reported heavy losses during the downturn of the auto cycle.

Return Ratios

So far we have covered the company description, industry overview, and sales figures under the fundamental analysis of TVS Motor. Let us dive in to understand the return ratios of the auto company: return on equity (RoE) and return on capital employed (RoCE).

YearRoE (%)RoCE (%)
201824.3623.66
201922.2220.49
202019.0318.95
202115.5215.51
202217.2015.46

We can conclude two things from the table above. For an auto company, TVS Motor Company has stellar return ratios. The second point is its return ratios have declined over the years. 

Primarily, the decline in return ratios has been because of commodity price inflation, lower profitability, and rising interest expense. We have covered the leverage ratios and their implications in the next section.

Debt/Equity Ratio and Interest Coverage Ratio

The debt-to-equity ratio of TVS Motor Company has increased over the years. The auto manufacturer has increasingly used external financing for capacity expansion. As a result, its leverage ratios have gotten worse at an alarming rate. 

The table below presents the debt-to-equity ratio and interest coverage ratio for the last five years.

YearDebt/Equity RatioInterest Coverage Ratio
20182.073.75
20192.572.63
20202.742.07
20212.441.95
20223.482.96

TVS Motor – Future Plans

So far we only covered the past figures of TVS Motor Company for our fundamental analysis of TVS Motor. How about you read more to find out what’s ahead for the company and its investors?

  1. It has set up a separate EV vertical with over 600 engineers to take advantage of the growing demand and government support. Additionally, TVS has also partnered with BMW for the design and development of urban EV models.
  2. TVS Motor Company has formed alliances with Tata Power, JIO BP, BESCOM, etc. for the creation of charging infrastructure.
  3. During FY22, the company acquired a majority stake in Swiss E-Mobility Group to strengthen its grip over Europe’s e-bike market.
  4. A new manufacturing facility of The Norton Motorcycle, a subsidiary of TVS was commissioned during FY22. The newly produced motorcycles are expected to hit the market soon to relaunch the renowned brand globally. 
  5. TVS Motor Company has been making capital expenditures consistently since FY18. For instance, during the last three years from FY20 to FY22, the company purchased fixed assets worth Rs. 1,021 crore, Rs. 928 crore and Rs. 984 crore. This points out how much the management is bullish about the future volume growth.

Fundamental Analysis of TVS Motor – Key Metrics

We are almost at the end of our fundamental analysis of TVS Motor. Let us take a quick look at its key metrics.

Share Price (Rs.)1026Market Cap (Rs. Cr.)48,736
EPS (Rs.)22.6Book Value (Rs.)92.6
Stock P/E46.6Price to Book11.1
Face Value (Rs.)1.0Dividend Yield0.37%
ROCE15.46%ROE17.20%
Debt to Equity3.48Promoter Holding50.8%

In Conclusion

We are now at the end of our fundamental analysis of TVS Motor. Led by its volume growth, TVS Motor Company’s stock has grown at a CAGR of 10.03% over the past five years. But this growth has come at the cost of rising debt levels and a lowering of the interest coverage ratio.

The outlook for auto and auto components manufacturers remains strong for the years ahead. Thus the investors of the company can expect a boom in revenue coupled with repayment of debt.

But that is one perspective of the auto manufacturer. It might be the case that the company is flying too close to the sun. What is your perspective of TVS Motor Company Ltd.? How about you let us know in the comments below?

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