Should you buy, hold, or sell TVS Motor shares after Q3 results?

Shares of TVS Motor Company were trading higher today, a day after the automobile company released its earnings for the third quarter ended December 31, 2022, which topped D-Street estimates. Many brokerages remained bullish on the auto major, suggesting a potential upside of up to 15% in the stock.

Reacting to Q3 earnings, TVS Motor share price opened higher for the third straight session at ₹994.90, up 0.9% against the previous closing price of ₹986.20 on the BSE. In the first hour of trade so far, the stock gained as much as 3.4% to hit an intraday high of ₹1,019.80, while the market capitalisation soared to ₹48,060 crore. The auto heavyweight trades close to its 52-week high of ₹1,177 touched on October 19, 2022, while it hit a 52-week low of ₹513 on March 3, 2022.

TVS Motor has posted double-digit growth in its profit and revenue as the two-wheeler manufacturer passed on the rise in input costs to its customers, while it also declared an interim dividend of ₹5 per share.

In the October-December quarter of the current fiscal, TVS Motor posted a net profit of ₹352.75, up 22.5% as compared to ₹288 crore in the same period last year. The Tamil Nadu-based company saw its revenue surging 14.7% year-on-year (YoY) to ₹6,545.42 crore in Q3FY23 compared to ₹5,706.43 crore in the corresponding quarter of last year.

The homegrown auto major, which makes Apache bikes and Jupiter scooters, has posted 16% growth in operating EBITDA at ₹659 crore compared with ₹568 crore in the third quarter of FY22. The operating EBITDA margin stood at 10.1% as against 10% in Q3 FY22.

The board of the company also declared an interim dividend of ₹5 per share (500%), absorbing a sum of ₹238 crore for the financial year ending March 31, 2023. The interim dividend declared will be paid on or after February 9, 2023, to eligible shareholders. The company has fixed February 2 as the record date for this purpose.

During the quarter under review, the company announced strategic engagement with Amazon India to strengthen electric mobility, electric infrastructure, and connected services and strengthening its commitment to achieving net-zero carbon. In Q3 FY23, electric vehicles registered sales of 0.29 lakh units as against 0.02 lakh units during the quarter ended December 2021 and 0.16 lakh units during quarter ended September 2022.

The Company registered total two-wheeler sales of 8.36 lakh units in the current quarter as against 8.35 lakh units in the quarter ended December 2021. Two-wheeler export sales stood at 2.07 lakh units as against 2.53 lakh units in Q3 FY22, while total three-wheelers was at 0.43 lakh units versus 0.44 lakh units in the quarter ended December 2021.

Brokerages view on TVS Motor Q3 results

Prabhudas Lilladher maintained a 'Buy' rating with a target price of ₹1,275 per share, a potential upside of 14.5% from the current market price, as the profit was ahead of estimates. The brokerage said that revenue was ahead its estimates on the back of improved volumes for premium bikes and price hikes. However, EBITDA margin was lower than its estimates owing to higher marketing spends for Ronin/i-Qube and advertisement spends during the festive season. “Management remains confident of growing ahead of the industry as semiconductor availability is now largely sorted out. Demand for electric scooter i-Qube remains robust and TVS aims at average monthly volumes of 10k by Dec-22 (8.1k in Oct-22) and 25k by Mar-23. Management highlighted a strong product pipeline for ICE and EV models,” it said.

ICICI Securities has also maintained a 'Buy' rating, but lowered the target price to ₹1,251 from ₹1,284 projected earlier. Despite operating leverage being adverse and margin-dilutive EV portfolio mix being higher, EBITDA margin was flat QoQ aided by lower input commodity costs and currency benefits, it said in a report. “With iQube breaching around 12k unit sales/month and clocking around 29k units in Q3, TVSL is looking forward to double its wholesales in Q4 itself, implying sales of nearly 18k-20k units/month soon,” it said. It added that the distribution network of EVs has crossed 200 outlets and with new EV models in the pipeline, TVSL is looking forward to make the EV portfolio EBITDA-breakeven soon.