TVS Motor Q2 Review - Weak Domestic Demand; Focus On EV Launches: Systematix
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TVS Motor Company Ltd.'s Q2 FY22 Ebitda margin at 9.6% (4% below our estimates and 5% above consensus) was aided by higher profitability from the sale of spare parts and resumption of export incentives in a difficult demand environment.
Commodity inflation and a weak product mix led to another quarter of gross margin contraction (-60 bps QoQ) but price hikes and cost rationalisation measures partially offset the impact.
The management indicated that festive demand has been weak; it expects rural demand to bounce back in H2 FY22.
On the electric vehicles (EV) front, the company has announced investments worth Rs 10 billion (Rs 3 billion in the current year) towards product development and capacity expansion (currently 1,20,000 units per annum). It will start product launches from H2 FY22.
The export (30% of sales) momentum remains strong across markets and demand is likely to outperform domestic sales. TVSL expects input costs to increase in Q3 FY22 and has taken a price hike of 1.1% in Oct. 2021.
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