Two two-wheelers (2Ws) majors - Hero MotoCorp and TVS Motors - are scheduled to announce their quarterly earnings on Thursday. Management commentary, guidance over the revival of exports, focus on EVs and their rising share push will be key for both companies, said analysts. Domestic dispatches of 2Ws continue to improve but broad-based recovery is yet to happen. Exports of 2Ws improved month-on-month (MoM), said Motilal Oswal Financial Services. It expects two-wheeler growth above estimates at 11 per cent on a year-on-year (YoY) comparison. "TVS Motors has been witnessing market share gains on favourable mix and success of new products. We expect TVS to gain share from 16 per cent to 16.8 per cent in FY23E, while Hero MotoCorp is likely to lose share," said Nuvama Institutional Equities' report. Brokerage firms expect that Hero MotoCorp may report a strong performance on a YoY basis, but its quarter-on-quarter (QoQ) performance is seen as better than TVS Motors, which may report flat-to-negative performance in terms of revenue, profit and EBITDA on QoQ comparison.
Here's what brokerages say:
Hero MotoCorp
Emkay Global expects Hero MotoCorp to report revenue at Rs 8,247.1 crore, up 11 per cent YoY with a EBIDTA at Rs 993.8 crore, rising 20 per cent YoY and 8 per cent QoQ as its EBITDA margin may expand 50 and 90 bps, respectively. The company may report an adjusted profit at Rs 714.6 crore, increasing 14 per cent YoY, but majorly flat on QoQ comparison, said Emkay. SMIFS Research expects Hero MotoCorp's volumes to be around 12.7 lakh in the March 2023 quarter, rising both QoQ and YoY. Revenues are seen at Rs 8,354 crore, up 12.6 per cent YoY and 4 per cent QoQ. It can report an EBITDA at Rs 1,029.9 crore, a double-digit gain on both QoQ and Yoy basis and margins may expand by 118 bps. PAT is seen at Rs 788.4 crore, surging 26 per cent YoY. The realisation to increase by 1.5 per cent QoQ to Rs 65,754 per unit led by price increase taken due to OBD2 & inflation. Gross margin is likely to improve by 100bps QoQ to 31.6 per cent in Q4FY23 owing to some benefits related to correction in steel & rubber prices, SMIFS said. "Operating leverage, commodity softening benefits, price increase, cost savings and higher selling of Xtec range to improve EBITDA Margin by 82bps QoQ to 12.3 per cent in Q4FY23. Offset by some negative impact is possible due to EVs and related A&P spends," it added. Total unit sales grew led by higher domestic sales partially offset by lower exports, said Axis Securities. It expects revenue to rise over 13 per cent YoY and 4.5 per cent QoQ to Rs 8,391 crore. EBITDA is seen at Rs 990 crore, rising about 20 per cent YoY, while EBITDA margins are seen expanding to 11 per cent, up 65 bps. Better product mix, assumption of slightly lower RM costs, partially offset by higher sales and promotion expenses related to Vida launch, said Axis, which pegs profit at Rs 752 crore, rising 20 per cent YoY but QoQ growth is seen in single digits. Hero Moto is fighting it out to maintain its dominance in 2Ws by leveraging its strong presence in entry-level and executive motorcycles, and also its solid brand equity and wide product portfolio. The company is poised to benefit from a domestic 2W industry upcycle given its extensive distribution network and product line-up, said Nuvama. The stock is trading at an attractive valuation, considering revenue and earnings CAGR of 9 per cent and 16 per cent, respectively over FY23–25E. We recommend ‘buy’ with a target price of Rs 2,910, it added. "Our positive stance is based on expectations of a cyclical upturn in domestic 2Ws; increasing focus on EVs; margin expansion; and inexpensive valuations," it said.
TVS Motors
Emkay Global pegs 17 per cent YoY growth in TVS Motor's revenue at Rs 6,458.3 crore, but maringally down QoQ. Its EBITDA can rise 18 per cent YoY to Rs 659.7 crore, with its EBITDA margin at 10.2 per cent, rising 10 bps. Its adjusted profit is seen at Rs 347.2 crore, up 26 per cent YoY, but down 2 per cent QoQ, said Emkay. SMIFS Research expects TVS motors volumes to remain flattish on YoY and QoQ comparison, while revenue is likely to rise over 17 per cent to Rs 6,495.8 crore, but mildly down on QoQ basis. EBITDA is seens at Rs 653.6 crore with EBITDA margins flat 10 at 10.1 per cent. Profit is seen at Rs 346.7 crore, jumping 26.3 per cent on YoY basis, but slightly lower on QoQ comparison. The realization is likely to remain more or less similar to QoQ as on the negative side lower 3W contribution and exports remain a drag. While price increases, better mixes are tailwinds. Dollar realization expects to be flat, said SMIFS. "EBITDA margin is likely to remain flattish QoQ at 10.1 per cent as on one side soft commodities and better mix should support, but on the other side higher sales of low margin EVs, poor geographic & product mix are some negatives," it added. Total sales units rose marginally by 1.4 per cent YoY but declined sequentially by 1.3 per cent as higher domestic sales were offset by lower exports, said Axis Securities. It expects revenues at Rs 6,617 crore, rising 20 per cent YoY and flat on QoQ basis despite lower sales volume, led by higher average price due to price hikes taken over last year. "We expect EBITDA margins to decline by 38 bps on both YoY and QoQ basis, lower operating leverage, increase in 2W EV scooters share of total sales and lower exports, while EBITDA is seen at Rs 641 crore, down QoQ but up 15 per cent YoY. Profit may rise 21 per cent to Rs 333 crore, but QoQ comparison may disappoint," Axis said. TVS grew 5 per cent YoY to 3,07,600 units despite a 30 per cent YoY decline in exports. TVS iQube production continued to ramp up with wholesales surpassing 15k units for the second month in a row, said Motilal Oswal. "TVSL has been outpacing the domestic industry, fortified by its strong presence in scooters, increased penetration in executive/premium motorcycles and success of new products. We expect this trend to sustain. Stock catalysts include continuing market share gains in 2Ws, new EV launches and value unlocking from its EV subsidiary," said Nuvama. TVS is estimated to clock revenue and EPS CAGRs of 10 per cent and 26 per cent, respectively over FY23– 25E driven by better scale, improved net pricing and cost savings. RoE to sustain above 25 per cent over FY23-25E led by better margins, it added while initiating coverage on the stock with a target price of Rs 1,300 and a buy rating.