TVS Motors vs Hero Motocorp

TVS Motors vs Hero Motocorp: In our ever-changing world, travel is essential. We help you commute and save time by using a car. Two-wheelers are the most efficient means of transportation in today’s traffic conditions. In this revolutionary stance, some companies have built their brand value on the adaptability, affordability and resilience of their two-wheelers, which has benefited them as market leaders.

Continued investments in R&D and automation will increase competition among players, benefiting customers. In this article, we will compare TVS Motor and Hero Motocorp in the automobile industry.

TVS Motors vs Hero Motocorp

TVS Motors – Company Overview

TVS motor The company was started in 1978 by TVSundaram Iyengar. The company is mainly engaged in manufacturing two-wheelers. They operate with a diverse portfolio of brands, including flagship brands such as Apache, Ronin, Raider, Jupiter, Ntroq, Radeon, Sport and their new electric vehicle division, iQube.

The annual production capacity was approximately 4.95 million two-wheeled vehicles and approximately 240,000 three-wheeled vehicles. They exist in regions such as the Middle East, Southeast Asia, Indian Subcontinent, Latin America, and Central America. Manufacturing facilities include Hosur, Mysuru and Nalagarh in India and Karawang in Indonesia.

segment analysis

In FY23, the company earned 85.56% of its revenue from automobiles and parts, 1.44% from auto parts, 12.98% from financial services and the remaining 0.02% from other. As of FY23, the proportion of domestic sales was 74.32% and the proportion of exports was 25.67%.

Hero Motocorp – Company Overview

Hero MotoCorp It was started by the Munjal brothers in 1984. The company has a wide range of products in its portfolio. These include Hero Splendour, Passion, CD100, Karizma, CD Dawn, Duet, Maestro, Xtreme, CBZ

They hold over 750 patents along with strategic cooperation with Harley Davidson, Ather and Zero motorcycles. It has a market share of 47% in the domestic motorcycle segment and 33.2% in the two-wheeler segment and has eight manufacturing facilities around the world.

segment analysis

The company recognizes revenue from operations in one segment, namely the automotive segment. They earn 95.64% of their revenue from India and the remaining 4.35% from globally in FY23.

TVS Motors vs Hero Motocorp – industry analysis

In India, population growth, increased discretionary spending, and rising living standards can directly benefit the automobile industry. As people have become more eager to travel, customer behavior has shifted from the generic standard bike market to premium bikes from ICE and now to the EV segment to save money and protect the environment. sustainability.

India offers tremendous cost advantages. Compared to Europe and Latin America, car manufacturers reduce operating costs by 10-25%. India is set to become the world’s largest EV market by 2030, with investment opportunities expected to exceed $200 billion over the next 8-10 years.

Automotive Mission Plan 2016-26 is a joint project between the Government of India and the Indian automobile industry to build a roadmap for the development of the industry. The Indian government has promised that 30% of new car sales in India will be electric vehicles by 2030. The electric vehicle industry is expected to create 50 million employees by 2030.

TVS Motors vs Hero Motocorp – Finance

Sales and Net Profit

TVS Motors reported operating revenue of Rs. 31,973.99 crore in FY23, an improvement of 31.28% from Rs. 24,355.31 crore. Hero Motocorp’s revenue grew 15.59% year-on-year to Rs. 34,158.38 crore in FY23.

Although both companies have reported better performance, TVS Motors has been outperforming Hero Motocorp for five years. Compared to Hero, TVS had better sales growth. Hero’s profits have been stagnant for five years. The FY19 peak recently crossed into FY23, showing the cyclicality of the industry.

TVS’ net profit is Rs. 1,309.46 crore in FY23 compared to Rs. In fiscal year 22, it is $7308.8 billion. Hero Motocorp stood at Rs. 2,799.90 crore in FY23, an increase of 20.21% from Rs. 2,329.05 crore in FY22.

Both companies’ profitability improved as net profit improved. TVS’ growth has surpassed that of Hero Motocorp. Hero’s profits were on a downward trend and showed signs of recovery by FY23. However, TVS is showing remarkable growth and is on the rise.

profit

TVS Motors’ OPM increased to 13.09% in FY23 from 11.27% in FY22. Hero Motocorp recorded 13.43% in FY23, a marginal improvement from 13.29% in FY22.

Both companies have improved their ratios in recent years. TVS improved its margin as a percentage of sales and material cost from 65.19% in FY23 to 66.75% in FY23. For Hero, employee costs in FY23 were slightly lower than FY22.

TVS’ FY23 NPM was 4.08%, up from 3% in the previous year. Hero’s performance improved from 7.74% in FY22 to 8.06% in FY23.

NPM improved for both companies, with TVS experiencing the effect of exceptional items doubling from an exceptional loss in FY22 to an exceptional profit in FY23. In the case of Hero, non-core profits increased, with exceptional items increasing and other profits accounting for more than 10% of total net profit.

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rate of return

TVS’s RoE increased from 17.77% in FY22 to 26.44% in FY23. Hero’s 17.23% in FY23 was an improvement from 14.90% in FY22.

Increasing RoE is better for shareholders as they can get more return on their capital. However, for both companies, returns fluctuated over the five years. The automotive industry is a highly cyclical industry where profits vary depending on economic conditions.

RoCE for TVS increased to 13.59% in FY23 from 10.94% in FY22. Hero achieved 23.07% in FY23 from 18.79% in FY22.

The RoCE trend replicates the RoE trend. TVS returns have been impacted by increased leverage despite strong profits in recent years. Hero’s returns have improved, but its leverage has increased slightly.

debt analysis

TVS Motor’s debt-to-equity ratio stood at 3.86 in FY23 compared to 3.4 in FY22. Hero Motocorp’s low is 0.04, which has remained consistent for the current and previous years. TVS’ debt is extremely high and an industry downturn could have a negative impact.

This business appears to be highly leveraged and carries greater risk as it relates to financial services. Hero has little or no debt and can increase spending based on strategic investments the company deems valuable. Hero outperforms TVS in this ratio.

The interest coverage ratio was 2.42 times in FY23 compared to 2.13 times in FY22. Hero’s traded at 37.84x in FY23, down from 58.59x in FY22.

TVS has low ratios and high interest expenses. Current profits cover interest expenses and any adverse impact on the cyclical auto industry could spell trouble for the company. The hero ratio is declining as interest costs rise, but is showing a stable trend. Depending on the industry, any company with a ratio of 3x or more is comfortable. In this respect, Hero outperforms TVS.

TVS Motors vs Hero Motocorp – Key Indicators

Let us take a look at key indicators of TVS Motor and Hero Motocorp.

TVS Motors vs Hero Motocorp – What’s next?

TVS motor

• The company is planning to launch a new series. electric car To expand our portfolio, we sell products from various segments.
• It plans to double the number of touchpoints on its electric scooter, iQube, from 400 to about 800 by the end of this quarter.
• They started exporting iQube scooters to international markets.
• TVS has signed a strategic partnership to enter the European market and plans to expand its presence by launching internal combustion engine (ICE) and electric vehicle (EV) products.
• With the acquisition of Norton Motorcycles, the company plans to launch its premium segment globally in the coming quarters.
• They are in advanced stages of developing electric three-wheelers that can boost their portfolio and presence.

Hero MotoCorp

• The company has planned to launch new premium motorcycle models such as Mavrick 440 to strengthen its portfolio.
• Hero plans to launch its affordable mid-range and premium segments in the first quarter of FY25.
• They plan to enter 100+ new cities and 150+ dealers across multiple formats such as Hero 2.0 stores and exclusive VIDA hubs.
• The expected production capacity for EVs is more than 10,000 units per month.
• We plan to invest 10 billion won. We will invest $600 million over the next two years to increase the size of our parts, accessories and merchandise business to over Rs. Potential for future sales of KRW 100 billion.
• The focus is on growth as the premium motorcycle segment and mid-range segment continue to outpace industry growth.
• Expand distribution to various markets such as Mexico, Nigeria, Colombia, and Bangladesh
• The company plans to increase investments in R&D, flex fuels and alternative battery chemistries for future products.

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conclusion

TVS Motors Vs Hero Motocorp As the article comes to an end, let’s take a brief look at both the companies. Both companies operate in price-sensitive sectors. TVS’s revenue growth outpaces Heroes. However, TVS’s high borrowings and interest costs are a concern as they could harm the company’s finances in the event of an economic downturn.

Overly leveraged businesses become risky after a certain point because fundamental measurements above 2x are considered riskier. This could ultimately lead to greater growth as an NBFC and as an automobile company. Both companies have strong vehicle brands in their portfolio.

They want to expand their portfolio and increase research and development, especially in the emerging electric vehicle business of the future across multiple sectors. What do you think about the potential of these companies? Let us know your thoughts in the comments section below.

Written by Santosh

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