This sector is expected to grow at 84% CAGR in the next 8 years | Should You Invest?

Recently, UPS has released a report concerning the Automobile industry where the report has forecasted a huge growth in the revenue share of the EV and Software Industry which caters to the automobile industry by the year 2030. Further TVS Motor Company which is a leading automobile player has also increased its focus on its EV business and is expecting a good amount of fund inflows in the coming period into the same business. So, let’s discuss these 2 subjects in detail in this article as we move ahead.

Automobile Industry:

• The revenues of the Global Automobile (Car) Industry is $1.95 Trillion as of the Year 2022 wherein the share of Internal Combustion (IC) Engine is Rs. $1.7 Trillion, while the revenue from Electric Vehicles (EVs) is around $200 billion.
• Software Industry which is supporting this automobile industry is having a very low share in the total revenue mix which stands at just around $10-$15 billion.
• Now as per the prediction, the revenue of the Global Automobile (Car) industry is expected to grow from $1.95 trillion to around $2.5-$2.6 trillion in the next 3 years i.e., 2025 showcasing the growth possibility of 20%-25%.
• The revenue mix of the automobile industry globally for the year 2025 is as follows: IC Engine Vehicles ($1.6 Trillion), EVs ($600 billion- expected to increase by 3 times), and the Software Industry supporting the Automobile Industry ($200-$300 billion-expected to increase by 15-20 times).
• Now moving forward to the industry status of Global Automobile (Car) for the year 2030, then the revenue is expected to stand at around $4.1 trillion wherein the revenue share of IC Engine will be just around $1 Trillion, EVs revenue share will be around $1.2 trillion, and Software Industry supporting the Automobile Industry revenue share might touch the mark of $1.9 trillion much higher than the current level of $10-$15 billion.

1 EV Stock to Watch:

• Recently TVS Motors has announced the launching of 2-wheelers and 3-wheeler vehicles in ranges of between 5KW to 25KW.
• The company is going to invest Rs. 1,000 Cr. in the Electric Vehicle business via retained earnings or source of own debt.
• Further as per the news report, the company can raise around Rs. 4,000 Cr. -Rs. 5,000 Cr. from the private equity players for the EV business. The company is also planning to open a separate subsidiary for the EV business which they have announced the same in October 2021.
• TVS IQube, the brand’s first model in the EV portfolio which includes 3 variants is also receiving a good response.
• In Q1FY23, the company is planning to take IQube’s production level to 10,000 per month which looks to be on right track.
• The company in this EV push plans to add more products and more variants to the existing EV vehicle models. This shows the focused approach of the company towards its EV business.
• This EV portfolio is present across 23 cities in India for selling and servicing.
• For EV vehicles, Tata Power and TVS Motors Company have already made a pact for EV charging infrastructure. TVS Motors has a similar kind of tie-up with state-run Convergence Energy Services Limited (CESL).
• TVS Motors is also having an agreement with BMW which will also add some more products to the product basket of the company in the coming years.
• As per the Annual Report and Other Reports of and about TVS Motors, there are 4 key points where the company is highly focused i.e.;

i) Diversified Portfolio

ii) Focus on Premiumization

iii) Cost-Control

iv) Superior Product Development Capability

• Key Financials Factor of TVS Motors:
• The Operating Profit Margin (OPM) of the March 2022 Quarter stands at around 13% which is their all-time high figure against the past financials years.
• The rise in OPM amid the rising commodity prices showcases the strong operational efficiency of the company.
• The increased OPM of the company is also an indicator of efficient cost-control measures.
• Valuation View:
• The stock of TVS Motors is currently trading at a PE ratio of 53 which is trading at a premium valuation following its Median PE of 1& 3-years (~38), 5-Year (~40), 7-Years (~39), and 10 years (~37).
• Looking at the progress the company is making on the EV business front as against the traditional 2-wheeler and 3-wheeler players, the company justifies its premium valuation.

What Should Investors Do?

The potential of the software industry which caters to the automobile industry is quite large in the coming 10 years. KPIT Tech, Tata Elxsi, etc. are some Indian players which have a concentrated approach in this area. Further regarding TVS Motors Stock, the company’s performance in the EV business and expected fund inflow of Rs. 4,000-5,000 Cr. by Private Equity (PE) Investors could prove to be very beneficial for the TVS Motor Company in its EV business push. Hence, all the discussed stocks/sectors are having great potential to grow amid the positive development across the board, and hence one should keep these stocks on their radar. Do follow due diligence before making any investment decisions.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.