TVS Motor Company Limited (532343) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the TVS Motors Limited Q1 FY '27 Earnings Conference Call hosted by 361 Capital Market Research. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Annamalai Jayaraj from 361 Capital Market Research. Thank you, and over to you, sir.

Thanks, Manav. Good evening, all the participants. On behalf of 361 Capital Market Research, welcome to 1Q FY '27 Conference Call of TVS Motor Company Limited. I also take this opportunity to welcome the management team of TVS Motor Company. We have with us today Mr. K.N. Radhakrishnan, Chief Executive Officer; Mr. K. Gopala Desikan, Chief Financial Officer. I will now [indiscernible] Mr. K.N. Radhakrishnan for the opening remarks to be followed by question-and-answer session. Over to you, sir.

Good evening, everyone, and thanks for joining us today. We are delighted to share the Q1 performance of this financial year. As you know, the Q1 comparing the last year Q1, the overall sales volume has grown to 1.63 million from last year's 1.28 million at the same quarter, 28% growth. The revenue is at INR 13,896 crores, a growth of 38%. Last year's number was INR 10,081 crores. Operating EBITDA grew from INR 1,260 crores to INR 1,779 crores, 41% growth. Operating PBT grew from INR 1,015 crores to INR 1,439 crores, 41% growth. And profit after past grew from INR 776 crores to INR 1,126 crores, 51% growth. So once again, thanks to the entire customer. This has been possible only because of our customer centricity approach and strong brands across all brands and our sustained [indiscernible] cost reduction initiatives taken up by the [indiscernible]. Once again, we would like to thank our customers for this significant milestone. I'll give you more details about the Q1 sales, '26-'27. 2-wheeler domestic high sales grew by 21% compared to last year Q1 of -- again, the industry growth of 13%. The 2-wheeler international market ICE grew by 31% and 2-wheeler overall, the ICE sales grew by 23% compared to last -- against the industry growth of 21%. 2-wheeler EV sales grew by 86%. All of us know that in the first quarter, the EV industry has significantly grown in India. We raised the volume of [ 130,000 ] in Q1 this year as against 70,000 during the last quarter -- last quarter of last year. Total sales of 3-wheeler also grew by 48%. We are at 67,000 units this quarter as against last year's 45,000. On financial performance, as I said, the company posted its highest operating EBITDA of INR 1,779 crores, a growth of 41% for the first quarter and gained INR 1,260 crores first quarter last year, '25-'26. The company's operating EBITDA margin improved by 30 basis points at 12.8% during the first quarter and this is against 12.5% last year first quarter. Company posted highest PVT, recording a growth of 51% for the first quarter as INR 1,050 crores in the first quarter of last year. PVT for the quarter -- this quarter includes fair valuation gain investments held by the company amounting to about INR 150 crores as against fair valuation gain of about INR 28 crores during last year first quarter. Current quarter, company's profit after tax grew by 51% at INR 1,174 crores as against INR 776 crores during first quarter of '25-'26. We're also proud to announce that recently, our long-term facility credit rating has been upgraded from CARE AA+ to AAA. The highest level of [indiscernible] awarded by CARE rating, is a direct reflection of our consistent performance and the trust we have earned and the deep responsibility we carry as we shape the future of mobility. This recognition further strengthens our ability to invest for long term, expand our global footprint, accelerate innovation and create sustainable value for our stakeholders. TVS credit performance has been outstanding. TVS Credit Services reported a sustained growth in disbursement supported by improved consumption demand, traction across key retail financing segment consumer durable financing growth was driven by higher discretionary spending and premiumization, increased reach and penetration. The 2-wheeler category witnessed strong demand due to steady semi-urban and rural participation and Marriage Season buying alone and along with in-revenelectric vehicle growth. During this quarter, TVS Credit continued to enhance its capabilities in AI, data analytics and technology to drive better risk assessment, customer experience and operational efficiency. Now credit further expanded its presence across semi urban and rural India, including its network to nearly 62,000 touch points across countries. TVS Credit disbursed loans over 14 lakh new customers, bringing the total customer base to nearly 2.6 crores. The book size of TVS Credit grew by 19%. Now it is at INR 3,253 crores as against INR 26,898 crores last year. Profit before tax for the quarter grew by 16%, INR 283 crores as against INR 243 crores during first quarter of last year. Our international business, in Q1, we have recorded highest ever international business sales of 4.68 lakh units, a growth of 33% year-on-year growth. The performance was driven by sustained demand across the international markets and continued strengthening of our distribution. In fact, the demand is much more. We are enhancing the capacity to meet the demand. It is a very, very positive news. The HLS series has got a huge pull from the market, and we are very happy that this segment is doing extremely well, that all the other product ranges are also doing extremely well in the international market. We are investing [indiscernible] capacity, and we are confident that we will be able to significantly improve these numbers quarter after quarter on 2-wheelers, equally on 3-wheelers. Africa continues to be a key driver of export growth, supported by robust demand for 2-wheelers and 3-wheelers. Here, specifically, I want to thank all the HLX customers in Africa and 3-wheeler customers. LatAm region also started doing well for us. We have grown ahead of the industry. We have just started our journey in Latam, and I'm pretty confident this is one market is also very important for us. And the growth momentum of the industry is very good. We are now present in most of the countries in LatAm, and we will start investing in marketing [indiscernible]. In this market, I'm pretty confident that we will continue to grow ahead of the industry, leveraging our products from India and Indonesia. Asia performance has been pretty good. And we are growing here also very well, and we will continue to grow ahead of the industry in this market. We remain focused on strengthening our international footprint through market expansion, product portfolio enhancement and deeper channel engagement by continuing to capitalize on growth opportunities across emerging export markets. And we are investing on premium products and also we are putting a lot of investments again brand-building initiatives, and I'm very sure our products like Apache, is going to do extremely well along with [indiscernible]. And some of the key highlights, if I look at it during this quarter, our TVS HLX has grown 5 million, 13 years back we started this journey on TVS HLX series. Today, we have HLX 100, 125, 150. And all these brands are doing extremely well in many markets. And what is more delighting for us is the last 1 million has happened in the last 1 year. So the speed has gone up. The demand has gone up and HLX brand stands for its customer durability, liabilities and in or on low maintenance costs across our [indiscernible] East and LatAm. We have also launched TVS Apache 160 4V in some more markets this quarter. We also unleashed the [indiscernible], in many international markets. I'm pretty sure that Radeon is one brand. It is going to do extremely well in the international market as well. As you know, domestic market, Radeon is doing very well. Now we are also now expanding multi-products into these markets in addition to HLX, RTR, 180, 200, 310, all are getting launched in these markets. The [indiscernible] previous rate is also getting introduced in Egypt. I'm very sure this is going to help us in strengthening our North African region. They have launched King EV MAX in Nepal, strengthening EV portfolio starting in the international markets. Now coming to Norton. Norton, we have very clearly highlighted your team, Mansard bank, the Super life and the [indiscernible] and Sport and also the Atlas and Atlas JT. [indiscernible] is getting ready. Production has started for [indiscernible] and Atlas has started production in Hosur. And I'm very sure that northern models, the highest and super premium motorbikes are taken with utmost focus on design, quality and performance. These 4 models, which are turnout orders are made under the TVS Motor ownership, we launched in U.K., France, Italy, Germany, Spain and India and later this year in the U.S. Norton motorcycles have marked the rollout of users models at previous motor company's wholesale manufacturing facility in June, and it has started moving into Europe and very confident that you will see this product in the next quarter. Atlas is one of the most significant addition to Norton market, the modern era engineered for sales across every Norton market, both present and future. Atlas model return the story mark to adventure-touring expense, respectively. And these categories that account together a substantial part of the growing share of global motorcycle sales. I'm very sure that TVS Motor and Norton, the British design, engineering capability with Indian manufacturing excellence and our focus on customers, shared commitment to quality for customers worldwide. And it is going to be making a brand impact in many of the markets where we are planning to launch. You would have all seen our premium bespoke experience standards products. We have recently announced this, and we are going to experience this in India soon. And so we have a strategic commitment to redefining premium ownership by bringing together innovation, personalization, immersive engagement to build deeper customer connections. Now coming to -- when we look at Q2. Q2 industry is likely to do very well and total industry. I'm very sure it will maintain the same momentum, double-digit growth is minimum what we are expecting in the market, very healthy demand and EV could be similar to the books what we have witnessed in Q1. Overall, the outlook remains very, very strong. We are looking at -- while there are challenges on consol progression and some innovation in terms of the foot and energy prices, the demand looks very, very strong. The domestic demand supported by the GST rationalization and some of the releases coming from the income tax and also affordability is going to help us. And we are pretty confident that we will see July, August, September same momentum, a slightly better momentum than Q1 continue. On international market, we are expecting the same growth rate to continue or slightly better growth rate. And we are also investing [indiscernible] capacity. That is going to help us. You would have seen the overall growth in Q1 was very good. And we are expecting the growth in the industry is slightly better in Q2. And the EV growth, we saw about 67% in the first quarter. and expecting the growth to continue in Q2. Overall, there are many, many factors, structural demand drivers replacement demand, affordability, continued EV adoption, all these are going to be supportive. And I'm pretty confident that TVS will do much better than the industry grows. In because of the [indiscernible] conflict, there was a volatility in commodity prices, including steel, aluminum. There are some that [indiscernible] in our material. And this translated into improved cost pressure and intermediation disruptions affected availability, especially in the month of April, the supply were affected for us. We have recovered in May, June was much better, and we will continue the momentum in July as a sector. We are also investing behind capacity, like I said last time. What is most important is, we are also able to mitigate these cost increases through top line growth, also some price adjustments in quarter 1. And we are also hopefully watching, and we will do a rate opportunity driven right price increases in Q2. Cost optimization and management scale benefits will continue in Q2. Despite the I think we are very happy that we had a healthy growth, and we are also focusing on continued growth going forward. The EV side, I think we would have seen in Q1, the penetration has [indiscernible] in the month of June alone, if you look at it is over 10.6%, which is a big change. And we continue to lead the Indian 2-wheeler market, and we have grown ahead of the industry, thanks to our portfolio of IQ and -- and we are extremely happy and thankful we have crossed 1 million iQube. It has played a key role in the journey of electric mobility adoption in India. Thanks to government for all the support given the early adoption of EV. And TVS has grown into one of the most preferred electric scooter brands and country's favorite family EV. The milestone marks an important chapter in India electric mobility journey and underscores the company's progress towards sustainable smart [indiscernible] and mobility future. On commercial mobility, when we look at it on the 3-wheeler, EV penetration, sustains gone cross 40%, significant growth. And here also, we have grown ahead of the industry, and we want to continue to invest and grow in this segment. And we have also announced our strategic partnership with to strengthen the last mine LPG cylinder distribution to sustainable commercial mobility solutions like cargo. And we will continue to invest behind overall capacity for our 3-wheeler both in domestic as well as in international markets. I already highlighted there was commodity prices sharp upward trend during Q1. But we have -- we are closely watching and we are also appropriately looking at opportunities to lightly give price increases equally leverage the cost benefits, product mix, geography mix, this journey will continue. And I'm very confident that during this quarter Q2 because we will be getting ready for our season, which is November -- this year, October and November. And there are planned launches during that time, which is going to delight any of the Indian customers. Our complete product portfolio, unwavering focus on consumers, our quality, new product and very clear on attractive quality, features and technologies. TVS Motor is confident about outperforming the industry, both in domestic and international market. We continue to navigate cost pressures and supply chain constraints during Q2. As we speak, the customer retail demand across both 2-wheeler and 3-wheeler are very robust and we are trying to capture this increased capacity both in domestic and international markets. During first quarter, you would have seen EBITDA of 12.8% despite all the pressures and we will continue to leverage scale benefit, better product mix, sustained effort and cost reduction, which will enable us to further improve our EBITDA. Thank you.

[Operator Instructions] We have a first question from Nitin Arora from Axis Mutual Fund.

Sir, just one question on the EV. If you can throw some light, what is our capacity? How much that capacity we are ramping up over the next 1, 2 years? And second, if you can throw some light on the EV penetration, which you are talking about even the last 2 quarters that industry will see surprise industry growth will be very good in EV? Any specific consumer insights if you can share what is leading to it? And just on the capacity side, how much is the current one? And how much you're building up for the next 2 years?

See, we had about 40,000 capacity. We are now moving to 50,000 plus. Now we are also constantly reviewing what is the next set of capacities required. And at this point of time, it has to be very closely watched, and we are investing in hand that. Same way on the EV side, 3-wheeler side also, we are looking at capacity. Like I said, we had about 20,000 capacity. Now we are moving to about 30,000 capacities in 3-wheelers, okay? And a good proportion will be on the EV side as well in 3-wheelers. So there is an opportunity to grow further. And as you know, capacity can be taken a step by step because it takes about 3 to 4 months to increase the capacity. So we are not so much worried about expansion. And we have also significantly increased our overall 2-wheeler capacity, like I said, to 8.3 billion this year, but it will happen over a period of quarter of this [indiscernible]. On EV, if you look at it, I think initially started with urban. And we used our network current main dealer network. Now we have started also supplying to the semi urban. And from the, we will also start moving to the rural India. As it says is I feel when we look at it, it is a smoother and customers are agnostic to the technology. The [indiscernible]. So we have to look at it. And today, common man has started by definitely common men started bike. Initially, it was more of people working at innovation, new technology. But as we progress now month after month we are able to see that there are many customers who are otherwise, would have bought an ICE coater or a motor cycle. In fact, some of the simple on the motor factors and the categories are also moving into scooter.

We have our next question from the line of Pramod Kumar from UBS Securities.

And my question is something different related to what's happening in the marketplace, sir. Because while -- the industry is grappling with a significant cost hike. We've seen 1 of your major rival is actually on a discounting stream in the scooter category. And then which effectively puts your product at a substantial premium versus what the competitor is offering the product at. So if you can just -- and even with that, you've been gaining market share, both on wholesale and on the retail front. So can just help us understand what's happening? And where are we in terms of supply versus demand on our scooter franchise. And because I see that on wholesale, you have already closed the gap with the market leader or category leaders to single-digit. So what is driving this kind of brand momentum for you where customers are willing to pay a reasonable premium, if not substantial, a reasonable premium over competitive models and that will the segment later? So if you can share your thoughts there. And then any implication of all this in terms of -- is the positive rub off also helping your electric scooter franchise as well?

See, overall, we have an excellent range in scooters. If you look at it, the whole Scooty, of course, we have stopped the pet, but the others would be still there. The [indiscernible] is still there. We started [indiscernible]. We also then did enter 125. Then we did Jupiter 125. Now we have done NT50. So I think all the brands are positioned on customer segments very, very carefully. And this customer loves this product, they're really love it, okay? And if you look at -- if I look at -- and we are always constantly leaving that category of scooter will grow substantially. And it is happening. I now include [indiscernible] the scooter category share in India is almost [indiscernible] And it is going to grow, okay? It's going to grow. This is number one. Number two, in -- when you look at Jupiter 110 or Jupiter 125 or [indiscernible] or enter we constantly upgrade and give new technologies, new features to our customers because we believe in giving something new every time to the customer because that's very, very important. This is on top of best-in-class durability and reliability, okay? So this is something ready if you look at the scores, we have got very high scores #1 position, #2 positions in scooter category. So this is what is most important. And we always maintain less than 30 days of stocks with the dealers, okay? We don't want to lose the retail, but all cash and carry dealers, they have to keep the right stock, right color, right models. And we are very clear, and we invest behind -- you would have seen during the IP recession also now very good brand awareness and creating why our scooters are good. So -- and I have a lot of respect for all our competitors because each one has got their own strategy. Okay. now retail financing coming in. There is a greater opportunity to grow this segment. In India, I'm now [indiscernible] you that user category share will go up substantially. And we need to learn from the consumer and customer requirement, what opportunity we can do further increases. So overall, it is a focus customer-driven approach of giving them the button class attractive quality with feature technology and also consistently delivering new products and refreshes store for reason and looking at the white spaces. I think that as smart has helped us to grow ahead of the industry.

Sir, second question, what is the dealer inventory that you're carrying right now being traded? And what's the target number of days you would like to have before the start of the section because we see that, you've been upping production and dispatches month after month, but your inventory numbers are not kind of kind of ramping up reasonably because of the strong retail. So if you can just help us understand where would you like to be for a comparable inventory position. so that you don't lose out on the retail demand in the estimand also along with that, if you can just share the export revenue number for the quarter, sir?

The inventory target maximum 25 to 30 days with the dealers, that is the number we always been. Maybe during season 30 days because [indiscernible]how the hike happens as the whole increases. So maybe at that time, maybe another 4, 5 days more. Otherwise month after month, always below 30 days, okay? The optimum is we not do the retail. So this has to be calibrated model wise, color wise. So that is the rework. And looking at overall this quarter, IB revenue is at INR 3,634 crores.

3,634 crores?

3,634 crores.

The next question from the line of Binay from Morgan Stanley.

My first question is on your EBITDA margin. In the last call, we talked about 3% to 5% commodity headwind, and you highlighted that 30% of it is passed on. Is it fair to say that the worst of commodity headwind is already there in this margin?

Commodity, the significant proportion has happened in Q1, there may be another marginal one because this time also, the war situation is up and down and especially on aluminum and some of the plastic and some other parts, which are related to oil is also moving up and down. So this is something we have to closely watch. But according to me, we always focus on the top line. We look at the product mix, we look at our journey, and all this has happened in one quarter at the first day. Even if you increase prices, it will take time to come back. So that's why we said we have taken about 1.5% in the first quarter. progressively, we have looked at in Q2 also 0.5%. So it's a journey. And we look at from the customer point of view. And appropriately, we will price it. This is very, very important that we have to continue from the customer point of view, the growth momentum. So I'm pretty confident that a combination of the product mix plus the road and scale benefit and cost reduction. We have a very strong cost reduction team, is going to help us in EBITDA journey.

Right, right. And my second question will be on the electric vehicle side. If you could talk about now that the IQ platform volumes are rising quite sharply. How is the profitability of that? Is that improving? How close is it to is now, if any comments on EV profitability?

So I'm extremely happy that we have crossed 1 million and our hit rate is going mandate. I completely agree with you. Our contribution is becoming better and better quarter after quarter. And I'm pretty confident that we'll be a little bit in patient, we will reach contributions of whatever we are looking at as a company. But at this point of time, quarter after quarter, the contribution is going up. And we look at overall portfolio, how it is yielding results. And I'm very confident that the direction is the right way.

Right, right. Sir, the PLN center number, if you could share that it.

It is about about o.6%, 0.7% of the turnover.

We have our next question from the line of Gunjan Prithyani from Bank of America.

I just wanted to follow up on the growth guidance that you gave for the domestic and the export that you expect the similar momentum. Is it fair that your enticing 20%, 30% growth should continue in quarter 2 as well? And if you can just give us some sense on how to think about the full year because with the second half GST last year, we did see a huge bump up post GST. So on a full year basis, how are you looking at growth outlook for both the segments, domestic as well as export?

The Q2 is also going to be booked in terms of the growth Okay. And in my opinion, ICE could be slightly better than Q1, okay? And we can keep up the same momentum or slightly better, okay? In terms of the overall year, I think this year is going to be an extremely good year. The only important thing we have to all watch is the Q3 because the El ninos, base effect, GST, the benefits started coming end of September. And this year, the season is going to be October, November. But when I look at from the summer point of view, I think if there are a little bit of all these estate issues, settling down, hopefully, I think that will give much more confidence. Now LPG is available, okay? And prices are not growing as we think. So Q2 will put a good base for that. So overall, as a year, we should estimate an industry growth of double digit.

Okay. Got it. And similarly strong performance in the export is like...

IV will be very, very strong. I can tell you. And EV, the growth momentum will continue. Definitely, growth momentum will continue. And you have seen already I told you, EV is 40% penetration and 2-wheeler ICE is about 10.6%. I'm not taking the average 9% to 10%, kind of taking just to 10.6% of June itself is a good indication that consumers are considering EV in [indiscernible].

Got it. And sir, just two very quick follow-ups. One, on the EV revenues that you can share what the number for this quarter was? And secondly, export has very strong momentum. Can you give us a little bit more color on what's really happening? Is it Africa recovering from the lows? Is it expansion of new markets? Like what really is driving this sort of 20%, 30% growth in the export market despite the headwinds that we're seeing on the West Asia front because some of these markets have actually seen 50%, 60% increase in petrol prices, right? So it doesn't seem to have impacted the sentiment in those markets. So just trying to understand what's driving the growth momentum there.

I think we -- you asked 2, 3 questions. So let me digest one by one. The EV total is about INR 1,780 crores, somewhere around. INR 1,780 crores, approximately something around that. Second is on IV growth. I think definitely Africa, you remember I said last year, the bad is over, the worst is over, the base effect is over. So definitely, there is a -- and predominantly is the taxi market. Of course, the other commuting classes also slowly going with the infrastructure roads available in these markets. So that is definitely helping. And now we are testing and the industry is growing significantly, and this momentum will continue. And interestingly, LatAm markets are also doing well. Asia is doing very well. So if you look at these markets where we are very good. In LatAm, we have started doing well better than the industry because we are present every country we have a distributor, and we are also leveraging our product range. So it's a combination of who in the market going up plus our product range.

We have our next question from the line of Kapil Singh from Nomura.

Just on the capacity, overall capacity, can you just update where are we today? And what is the plan for capacity expansion?

I think last time I highlighted, we are going to 8.3 million from the current capacity of about 6.8 million. And in 3-wheeler, we are going from 25 million capacity to about 0.42 million. So this is a big, big increase, and that's why we are also investing somewhere around -- including our new products, we are investing about INR 3,500 crores, products plus all the capacity expansion, which is going to come over the last -- next 1 quarter is over second quarter, third quarter. Before quarter, we will reach is 6.3 million capacity.

And also on the cost increase, can you quantify how much was the cost increase that commodity cost increase we saw in Q1?

Amount cost, I think, is about 3.5% and maybe another 5% this quarter because there is a quarterly adjustments. So overall, you can take about [indiscernible], so about 4%.

Okay. And sir, just last question, you mentioned on...

Sorry, so the participant was discounted. We have our next question from line of [indiscernible].