TVS Motors Company is the 3rd largest 2-wheeler company in India with market capitalization of Rs 30,000 crore. Other than India, the company also located in the other international markets like the Middle East, Africa, South East Asia, Latin and Central America, and Indian Sun-continent. The CMP of the stock closed on 06 May 2022 was Rs 629.05 after falling 0.32%. Anand Rathi Financial Services Ltd has issued a buy rating on the stock with a target price of Rs 768.
Key reasons to invest in the stock
The brokerage explains, "Despite RM prices further inching up in Q4 FY22, 10.1% healthy margins were maintained. Prices were raised 1.5% during the quarter, though ~1% under-recovery persists. Historically, we have seen that the company passes on the costs in 2-3 quarters and we believe a similar situation would prevail and, given strong volume growth, passing of costs would happen easily, in our view(refer Exhibit 8). As supply constraints normalise in subsequent quarters, we expect volumes to pick up, boosted by better off-take of premium motorcycles. Accordingly, we expect 10% margins in FY23 and FY24 each."
TVS Motors reported a good set of numbers despite a slight decline in volumes in Q4 FY22. The brokerage has said, "Q4 FY22 revenue grew 4% y/y, but q/q declined 3% to Rs55bn while volumes declined 8% y/y, 3% q/q, to 856,456 units. Semiconductor shortages continued, impacted off-take of premium motor-cycles and scooters, ~30% of the product mix. In EVs, iQube volumes were 2,500 units for Mar'22 and is now in 33 cities. A ramp-up is expected to 10,000 units a month by end-Q1 FY23. Positive feedback continues and the company has an order book of ~12,000 units (6,000 last quarter). Management talked of 6-8 EV launches in the next two years Q4 FY22 export volumes declined a mere 2% y/y to 315,156 units and revenues were Rs19bn. Market shares continue to be gained in Africa and Europe. The company plans to launch products in subsequent quarters from Norton and SMEG, primarily catering to international markets."
Brokerage recommends buy for a target price of Rs 768
The brokerage said, "We expect a 20% revenue CAGR over FY22-24, and 33% earnings growth, leading to an EPS of Rs33.3. With volume recovery expected, we upgrade our rating to a Buy, with a higher TP of Rs768 (22x FY24e), incl. Rs35 a share for TVS Credit Services." The brokerage has also said that the Competition in electric vehicles with respect to start-ups is a key risk.
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