TVS Motors Vs Hero Motocorp: Travelling is a necessity in the ever-evolving world. By the use of vehicles, we commute and help in time-saving. Two-wheelers are the most efficient mode of transportation in today’s traffic. In this revolutionary stand, some companies built their brand value on the modifications, affordability, and resilience of two-wheelers, which benefited them as market leaders.

Consistent investment in R&D and automation increases competition among players, which benefits customers. In this article, we will compare TVS Motor and Hero Motocorp, both of which operate in the automobile industry.

TVS Motors Vs Hero Motocorp

TVS Motors – Company Overview

TVS Motor Company was started in 1978 by T.V.Sundaram Iyengar. The company mainly deals in manufacturing two-wheeler automobiles. They operate under a diverse brand portfolio, including flagship brands such as Apache, Ronin, Raider, Jupiter, Ntroq, Radeon, Sport, and the new electric vehicle segment, iQube.

Their annual production capacity for two-wheelers was around 4.95 million, and for three-wheelers, it was approximately 2,40,000. They are present in regions such as the Middle East, Southeast Asia, the Indian subcontinent, and Latin and Central America. Hosur, Mysuru, and Nalagarh in India and Karawang in Indonesia are their manufacturing facilities.

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Segment Analysis

In FY23, the company earned 85.56% of its revenue from automotive vehicles and parts, 1.44% from automotive components, 12.98% from financial services, and the remaining 0.02% from others. Their domestic sales contributed 74.32%, and the remaining 25.67% for exports in FY23.

Hero Motocorp – Company Overview

Hero Motocorp was started in 1984 by the Munjal brothers. The company has a diverse range of products in its portfolio. It includes Hero Splendour, Passion, CD100, Karizma, CD Dawn, Duet, Maestro, Xtreme, CBZ Xtreme, Impulse, and Xpulse, and is available in over 47 countries with over 9,000 customer touchpoints worldwide.

They have 750+ patents filed under their belt, along with strategic collaborations with Harley Davidson, Ather, and Zero motorcycles. They have a 47% market share in domestic motorcycles and 33.2% in the two-wheeler segment, and they have eight manufacturing facilities around the world.

Segment Analysis

The company recognizes revenue from operations in one segment, namely the automotive segment. They earn 95.64% of their revenue from India, with the rest of the world accounting for the remaining 4.35% in FY23.

TVS Motors Vs Hero MotocorpIndustry Analysis

India is seeing population expansion, increased discretionary spending, and a rise in the standard of living, all of which can directly benefit the automobile business. As people become more eager to travel, customer behavior has shifted from the regular standard bike market to premium bikes in ICE, and now to the EV segment for cost savings and environmental sustainability

India offers tremendous cost advantages. Compared to Europe and Latin America, automakers save 10-25% on operations. India is on course to become the world’s largest EV market by 2030, with an estimated investment opportunity of more than $200 billion over the next 8-10 years.

The Automobile Mission Plan 2016-26 is a joint project by the Government of India and the Indian automobile industry to establish a road map for the industry’s development. By 2030, the Indian government has promised that 30% of new car sales in India will be electric. The electric car industry is expected to generate five crore employees by 2030.

TVS Motors Vs Hero Motocorp – Financials

Revenue and Net Profit

TVS Motors reported revenue from operations of Rs. 31,973.99 crore in FY23, an improvement of 31.28% from Rs. 24,355.31 crore. Hero Motocorp increased its revenue by 15.59% YoY to Rs. 34,158.38 crore in FY23. 

Both companies have reported better performance, however, over 5 years, TVS Motors has outperformed Hero Motocorp and is delivering growth. The revenue growth was better for TVS as compared to Hero. Hero’s revenue was subdued over 5 years. The FY19 peak is crossed in recent FY23, showing the cyclicality of the industry.

Particulars/ Financial Year2022-232021-222020-212019-202018-19
TVS Motor - Revenue (Cr.)₹31,973.99₹24,355.31₹19,420.82₹18,849.31₹20,159.99
Hero Motocorp - Revenue (Cr.)₹34,158.38₹29,551.28₹30,959.19₹29,255.32₹33,972.23

Net profits of TVS stood at Rs. 1,309.46 crore in FY23, compared to Rs. 730.88 crore in FY22. Hero Motocorp’s stood at Rs. 2,799.90 crore in FY23, an increase of 20.21% from Rs. 2,329.05 crore in FY22.

The net profits for both companies improved their profitability. The growth of TVS outpaced Hero Motocorp’s. Hero’s profits are in a decreasing trend and until FY23, there was a recovery. However, TVS saw exceptional growth and is on an increasing trend.

Particulars/ Financial Year2022-232021-222020-212019-202018-19
TVS Motor - Net Profit (Cr.)₹1,309.46₹730.88₹607.50₹646.80₹725.40
Hero Motocorp - Net Profit (Cr.)₹2,799.90₹2,329.05₹2,936.05₹3,659.41₹3,466.35

Profit Margins

OPM for TVS motors was 13.09% in FY23, up from 11.27% in FY22. Hero Motocorp’s stood at 13.43% in FY23 marginally improved from 13.29% in FY22.

There has been an improvement in the ratios in recent years for both companies. TVS improved its margin and cost of materials as a percentage of revenue, which was 65.19% in FY23 versus 66.75% in FY23. For Hero, employee costs were slightly lower in FY23 than in FY22.

Particulars/ Financial Year2022-232021-222020-212019-202018-19
TVS Motor - OPM (%)13.09%11.27%11.69%12.09%10.83%
Hero Motocorp - OPM (%)13.43%13.29%14.78%18.24%16.46%

TVS’s NPM stood at 4.08% in FY23, up from 3% the previous year. Hero’s performance improved from 7.74% in FY22 to 8.06% in FY23. 

NPM improved for both companies, with TVS experiencing the effect of an exceptional item, which doubled from an exceptional loss in FY22 to an exceptional gain in FY23. For Hero, exceptional items increased, and other income contributed more than 10% of total net profits for the year, indicating an increase in non-core income.

Particulars/ Financial Year2022-232021-222020-212019-202018-19
TVS Motor - NPM (%)4.08%3.00%3.12%3.42%3.59%
Hero Motocorp - NPM (%)8.06%7.74%9.32%12.20%10.00%

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Return Ratios

TVS’ RoE increased to 26.44% in FY23 from 17.77% in FY22. Hero’s 17.23% in FY23 improved from 14.90% in FY22.

The increase in RoE is better for the shareholders as they are earning more returns on the capital. But for both companies, the returns have fluctuated over 5 years. The automobile industry is highly cyclical, with earnings varying depending on how the economy performs.

Particulars/ Financial Year2022-232021-222020-212019-202018-19
TVS Motor - RoE (%)26.44%17.77%17.09%20.05%24.81%
Hero Motocorp - RoE (%)17.23%14.90%19.69%22.13%27.63%

RoCE for TVS was 13.59% in FY23, up from 10.94% in FY22. Hero achieved 23.07% in FY23, up from 18.79% in FY22.

The RoCE trend replicates the RoE trend. TVS returns have been impacted by increased borrowings, despite higher earnings in recent years. Hero’s returns have improved, but their borrowings are slightly increasing.

Particulars/ Financial Year2022-232021-222020-212019-202018-19
TVS Motor - RoCE (%)13.59%10.94%10.91%12.48%15.70%
Hero Motocorp - RoCE (%)23.07%18.79%24.89%27.00%39.75%

Debt Analysis

TVS Motor’s debt-to-equity ratio stood at 3.86 in FY23, compared to 3.4 in FY22. Hero Motocorp’s stood at a low of 0.04, consistent in the current and previous years. TVS’ debt is extremely high, and any industry downturn can have a negative impact.

The business looks highly leveraged and carries a greater risk as it involves financial services. Hero has less or no debt and can increase spending based on strategic investments that the company considers valuable. Hero outperforms TVS in this ratio.

Particulars/ Financial Year2022-232021-222020-212019-202018-19
TVS Motor - D/E3.863.43.343.242.77
Hero Motocorp - D/E0.040.040.030.030.02

The interest coverage ratio stood at 2.42 times in FY23 compared to 2.13 times in FY22. Hero’s stood at 37.84 times in FY23, down from 58.59 times in FY22.

TVS has a low ratio and high-interest costs. Profits currently cover interest costs, and any adverse effects in the cyclical automobile industry can cause problems for the company. Hero’s ratio is stable, even though it is trending downward as interest costs have risen. Any company with a ratio greater than 3 times is comfortable based on industry. In this regard, Hero outperforms TVS.

Particulars/ Financial Year2022-232021-222020-212019-202018-19
TVS Motor - Interest Coverage2.422.131.932.012.63
Hero Motocorp - Interest Coverage37.8458.5983.9482.60138.29

TVS Motors Vs Hero Motocorp – Key Metrics

Let’s look at some of the key metrics of TVS Motor and Hero Motocorp

ParticularsTVS MotorHero Motocorp
CMP₹2,128.65₹4,562.95
Market Cap (Cr.)₹95,124₹98,131
EPS (TTM)₹30.69₹168.15
RoE (%) (TTM)23.06%18.37%
RoCE (%) (TTM)12.45%24.70%
Stock P/E (TTM)65.2429.19
Current Ratio (TTM)2.641.59

TVS Motors Vs Hero Motocorp – Future Plans

TVS Motors

  • The company will be launching a series of new electrical vehicle products in different segments to expand its portfolio.
  • It plans to double the number of touchpoints for its electric scooter, iQube from 400 to around 800 by the end of this quarter.
  • They have started exporting iQube scooters to International Markets.
  • TVS has signed a strategic partnership to enter the European market and will launch ICE and EV products to expand its presence.
  • With the acquisition of Norton Motorcycles, they plan to launch in the premium segment globally in upcoming quarters.
  • They are in the advanced stages of developing electric three-wheelers which can increase their portfolio as well as presence.

Hero Motocorp

  • The company has planned launches of new premium motorcycle models like the Mavrick 440 to strengthen its portfolio.
  • Hero is looking to launch affordable mid and premium segments in Q1 FY25.
  • They are planning to enter 100+ new cities and 150+ dealers across multiple formats like Hero 2.0 stores and exclusive VIDA hubs.
  • Estimated targeted capacity of over 10,000 units per month for the EVs.
  • Plans to invest Rs. 600 crore over the next 2 years to increase the capacity of the parts, accessories, and merchandise business to over Rs. 10,000 crore revenue potential in the future.
  • Focusing on growing the premium motorcycle segment and mid-range as these two categories continue to outpace industry growth.
  • Expanding distribution across different markets like Mexico, Nigeria, Columbia and Bangladesh.
  • The company is looking to increase investments in R&D, flex fuels, and alternative battery chemicals for future products.

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Conclusion

As we near the end of the article TVS Motors Vs Hero Motocorp, we will take a brief look at both companies. Both companies operate in a price-sensitive sector. The revenue growth of TVS outpaces hero. However, TVS’s high debt and interest costs are cause for concern, as any downturn can harm the company’s finances.

Any over-leveraged business is a risk after a certain point, as a basic measure of more than two times is considered riskier. services, which in turn can lead to further growth both as an NBFC and as an automobile company. Both companies have strong brands of vehicles in their portfolios.

They want to expand their portfolio and increase their research and development, particularly in the emerging future business of electric vehicles across segments. What do you think about these companies potential? Let us know your views in the comments section below.

Written by Santhosh

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