TVS Motor posts 75% profit growth, but worries about capital allocation persist
TVS Motor Co Ltd stock fell 3% on Tuesday even though the company posted 75% year-on-year growth in standalone net profit to ₹852 crore in the March quarter (Q4FY25). Earnings got a boost as the company accounted for benefits under the government’s production-linked incentive (PLI) scheme.
Two PLI components were included in the Q4 financials – ₹47 crore for the quarter and ₹160 crore for the prior period. Excluding these, Q4FY25 Ebitda margin was 12% compared to 11.3% a year ago. This is the highest margin TVS has reported over the past eight quarters at least. However, it’s still well below the around 20% margin its closest peer Bajaj Auto Ltd – which has a presence in both two-wheelers and three-wheelers – reported in 9MFY25 (Q4FY25 results are not yet out).
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Adjusted for the entire PLI benefit, TVS’s Q4FY25 profit-before-tax growth is 35% year-on-year, which is no mean feat. FY25 sales volume growth was 13% and management aspires to repeat this in FY26. It believes key drivers for higher demand from rural areas are easing retail financing conditions for customers and forecasts of a normal monsoon.
Exports grew 18% in FY25, contributing 25% of total volumes. While demand for the company’s products remains buoyant in Latin America, a revival in African and Sri Lankan markets should further supplement growth.
Capital allocation worries
Importantly, there are worries about capital allocation, as can be seen from the balance sheet data. Standalone net debt was up 40% to ₹1,441 crore in FY25 despite TVS reporting Ebitda of nearly ₹4,500 crore for the year. The company incurred capital expenditure of ₹1,800 crore and invested ₹2,100 crore in subsidiaries. Guidance for FY26 also calls for a similar level of investments in subsidiaries such as TVS Credit, Norton Motorcycles in the UK, and its electric bike subsidiary.
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The company acquired Norton Motorcycles in 2020 and has been investing in both the Norton and e-bike businesses in Europe for more than three years, with no meaningful returns yet in sight. This is a major cause for concern regarding the stock, said Motilal Oswal Financial Services.
Perhaps TVS’s management is still hopeful of a turnaround with the launch of new models of Norton bikes. Still, there’s no denying the company’s bet on Norton has not paid off so far. Amid concerns over capital allocation, TVS’s shares are richly valued at about 39 times estimated FY26 earnings, based on Bloomberg consensus.
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