The new emission norms in the Indian market have resulted in 10-15 per cent increase in two-wheeler prices.
ET Intelligence Group: Despite falling sales volume, TVS Motor trades at a premium valuation on bourses compared with peers including Hero MotoCorp and Bajaj Auto. Its stock gained nearly 2 per cent on Tuesday reflecting analysts’ belief that the current volume decline has bottomed out and growth may resume in the coming quarters. This, however, looks difficult given the intense competition in the domestic twowheeler market and headwinds in Nigeria, the company’s largest overseas market for three-wheelers.
The new emission norms in the Indian market have resulted in 10-15 per cent increase in two-wheeler prices. In the last 18 months, every time the cost of ownership rose due to regulatory measures, it affected volumes. This is a major challenge for TVS at a time when its volume is lagging the sector.
In the first nine months of FY20, the company’s two-wheeler volume dropped by 18 per cent compared with the 15 per cent fall reported by the sector.
Its management believes that the sharp rise in prices may lead to a marginal volume decline in the first half of the next fiscal and is hopeful of recovery in the remaining part of the fiscal year.
In the December quarter (2019), the company’s motorcycle volume fell by 32 per cent, thereby reducing its market share to 6.4 per cent from 7.5 per cent in FY19. The decline in the market share in the economy segment is more than 450 basis points reflecting higher competition at the entry level. The company’s moped segment, too, remained under pressure. In the first nine months of FY20, the domestic moped volume fell by 25 per cent. The motorcycle and moped segments account for 40 per cent of the company’s total sales volume.
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Exports have so far been good for the company with volume growing 22 per cent and 12 per cent in the December quarter and the first nine months of FY20, respectively, helped by the lower base in the comparable period of the previous fiscal. However, the recent ban on two- and three-wheelers in Nigeria, which accounts for 55 per cent and 12 per cent of the company’s three-wheeler and two-wheeler exports, may spoil the party.
The Nigerian ban is in the wake of rising accidents and crimes in the country. If the ban persists for a longer period, it will hurt TVS’s export volume. At Tuesday’s closing price of Rs 463.1, the stock was traded at 25.8 times one-year projected earnings. This is at 65 per cent premium to the average valuation of the peers. Given the tough operating environment, the company may find it difficult to retain the premium valuation.
