Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TVS Motor Co Ltd (BOM:532343, Financial) posted its highest-ever revenue, EBITDA, and profits in Q1 FY '25.
- Operating revenue grew by 16% to INR8,376 crores compared to the same quarter last year.
- Two-wheeler domestic ICE sales grew by 14%, outperforming the industry in retail.
- EV two-wheeler sales increased to 52,000 units from 39,000 units in the previous year's Q1.
- The company's operating EBITDA margin improved by 90 bps to 11.5%.
Negative Points
- Three-wheeler sales were slightly lower at 31,000 units compared to the first quarter of last year.
- Challenges in the international business due to issues in the Red Sea affecting transit times and vessel availability.
- Certain African markets are facing challenges due to currency devaluation and persistent inflation.
- The company has not recognized PLI incentives in this quarter, which could impact future financials.
- Increased other expenses due to higher packing, freight, and marketing costs, as well as investments in digital technologies.
Q & A Highlights
Q: My first question is just on the other expenses line this quarter, seems to be about 11.4% of the total top line. Is there any one-off in the other expenses line item this quarter?
A: There are three important things. One is variable nature, packing, freight, everything has gone up. It's about INR60 crores. The investment in brand building activities has resulted in an increase in marketing expense of almost INR87 crores. Additionally, we are investing in digital technologies and innovation, which is another INR35 crores.
Q: Related to the PLI incentives, most of your peers in the two-wheeler industry are already booking the PLI incentives. Why are you holding back from booking the PLI incentives in your accounts?
A: Our products are eligible and certified, meeting all the requirements of DVA. Recently, the government issued an SOP in this regard. We are finalizing revenue recognition for this purpose. Conservatively, we have not recognized PLI incentive in Q1. When we do recognize it, we will clearly note what is relatable to this quarter and previous quarters.
Q: Can you give us the export revenue for the quarter, the spares revenue for the quarter, and your current annual exposure in volume terms to Bangladesh?
A: Bangladesh is very small. In terms of IV total revenue, it is INR1,963 crores for Q1. Parts revenue is about INR846 crores.
Q: Can you talk about the improvement in the gross margins for the quarter? Was there a softening of commodity prices?
A: The improvement primarily came from sustained material cost reduction initiatives and product and geography mix, resulting in about 1.4% benefit. There was a small selling price increase and commodity price increase, both around 0.2%.
Q: What is the CapEx plan and investment plan for FY '25? Also, can you provide some color on the operating environment for Norton and Swiss e-mobility?
A: The CapEx plan for this year will be about INR1,000 crores to INR1,100 crores. Investments will be of the same order, slightly higher. Norton is focusing on design and development, with significant investments in engineering and technology. For e-mobility, Europe has been slow due to economic challenges, but we are confident things will improve in a year's time.
Q: When should we expect revenue contribution from Norton to kick in?
A: Revenue changes will start appearing next year, end of 2025. After that, you will see launches in a series every quarter or two. Investments will continue until the first model is launched, and then we will assess further investments.
Q: Can you share your thoughts on introducing Norton in India? Are these six products relevant for India as well?
A: India is a huge market with super premium customers. We are confident that some of these products will be launched in India, as they are applicable to the Indian market.
Q: Can you provide an update on your EV pipeline? Will the upcoming electric launch be on the two-wheeler or three-wheeler side?
A: There will be a two-wheeler, a three-wheeler, and another ICE two-wheeler launch between Q2 and Q3.
Q: Can you elaborate on the investments in digital and R&D efforts? How big is your digital and software team?
A: Our digital analytics team has more than 200 people, software team has more than 150 people, and electronics team has similar numbers. Overall, we have added 450 to 500 people in new areas of technology.
Q: How should we think about the impact of EVs on margins this quarter?
A: We look at consolidated margins between ICE and EV. Overall profitability has moved to 11.5%, which is one of the best. EV has a positive contribution, but there are investments in product, technology, software, and CapEx.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
