TVS investments in loss-making UK arm Norton spark analyst concerns
India's third-largest two-wheeler seller's management highlighted during the post-Q4 results earnings call on Monday that the company will focus on developing new product range for Norton, which is expected to hit the markets by the end of the current fiscal year.
At least two brokerage firms highlighted that the investments into the subsidiary are weighing on the overall performance of TVS, while a third analyst noted that meaningful revenue from Norton will only come in the second half of financial year 2027.
'Capital allocation remains a concern. TVS has heavily invested in foreign subsidiaries. Over the last five years, these investments have grown at ~25% CAGR,' analysts at Nirmal Bang wrote in a 29 April note.
'On a cumulative basis, these subsidiaries have been making losses with the bulk of the losses booked in Norton and SEMG.'
Norton was acquired by the Hosur-based company in 2020 in an all-cash deal for ₹ 153 crore. Since taking over the motorcycle brand, TVS has invested more than ₹ 1,000 crore into the company. In 2021, it opened a new plant in Solihuli, UK, with a capacity to produce around 8,000 motorcycles annually.
Through these investments, TVS wanted to create products for the global market through the Norton brand. However, losses have piled up. Ebit (earnings before interest and taxes) losses from subsidiaries, which includes Norton but excludes TVS Credit, stood at ₹ 140 crore in 4QFY25 versus ₹ 91 crore in 4QFY24, according to a 29 April note released by Kotak Institutional Equities.
TVS did not respond to Mint's emailed queries.
Analysts at Kotak Institutional Equities also noted that free cash flow generation of the company, or the cash generated by its business, saw a sharp decline of 83% to reach ₹ 230 crore due to capital expenditure and investments nearly doubling to about ₹ 4,000 crore in financial year 2025.
'Increased losses from subsidiaries (excluding TVS Credit) need to be monitored,' Rishi Vora of Kotak noted. 'The company continues to incur losses on the Norton Motorcycle subsidiary as it continues to undertake costs of the development cost of TVS Motor.'
To be sure, this is not the first time the company is facing tough questions on the viability of its UK-based business. Faced with persistent questioning by analysts in the October 2023 earnings call, the management of the company had put up a brave face.
TVS CEO K.N. Radhakrishnan had expressed confidence in Norton's ability to generate profits earlier. "You give me a few more quarters, Norton will start delivering very good results for the company," Radhakrishnan said in October 2023.
Large share of investments is going into product development for Norton. The first new product under development is expected to hit the market by the end of this financial year.
But some believe the company is still far from generating meaningful revenue.
In a note dated 29 April, analysts at Axis Securities wrote that increased investments have muted the company's free cash flow.
'We estimate Norton's business to be able to generate meaningful revenues by H2FY27,' Shridhar Kallani of Axis Securities wrote in the note.
TVS reported its earnings on Monday, in which it beat estimates. During the January to March period, the company saw its net profit jump 76% to ₹ 852 crore, from ₹ 485 crore in the year-ago period.
Total revenue during the period grew 17% to ₹ 9,565 crore, from ₹ 8,140 crore a year ago.
For the full year, its profit grew by over 30% to reach ₹ 2,710 crore, while revenue rose 14% to ₹ 36,309 crore. During the year, it also recorded the highest-ever sale of 4.7 million units of two-wheelers in the country.
But the better-than-expected performance of the company was not able to impress investors. On Tuesday, TVS shares closed 3.4% lower as against a 0.24% fall in Nifty Auto.
First Published: 30 Apr 2025, 05:00 AM IST
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