Buy This Auto Stock For 16% Gains, Revenue Grew 20% QoQ, EV Ramp-Up In Focus: Prabhudas Lilladher

Prabhudas Lilladher has given a buy rating to TVS Motor Company Limited, a mid cap homegrown two-wheeler manufacturer. The brokerage estimated a target price of Rs 1,275 per share to TVS Motor with a buy call. Investors buying the shares of the company can expect a potential upside of up to 16% from the current level. TVS Motors is an auto sector company having a market cap of Rs 51,827.25 crore.

According to the brokerage, the Double-digit EBITDA margin trajectory continues - at 10.2% (+20bps QoQ). Management aims at ramping-up i-Qube volumes to 10k units/month by Dec-22 and further increase to 25k units/month by Mar-23 (Oct-22: 8.1k units).

Stock Outlook & Returns

The shares of TVS Motor currently trading at Rs 1100.45 per share on NSE, down 1.23% as compared to its previous close of Rs 1,114.15 per share. On October 19, 2022, the stock recorded its 52-week high level at Rs 1,176.90, and its 52-week low on March 07, 2022, at Rs 513.55, respectively.

The stock in the past 1 week has fallen 4.34%, whereas, in the past 3 months it has given 15.6% positive returns. Over the past 1 year, the stock gave 54.68% positive returns. It has given a multibagger return of 144% in 3 years. Whereas, it gave 54.81% positive return in the past 5 years.

2QFY23 performance

Revenue at Rs 72.2bn (PLe: Rs 69bn) grew 20% QoQ led by better-than-expected ASPs at Rs 70.26k (+6% QoQ) on account of premiumisation and price hikes. However, EBITDA margin at 10.2% (+20bps QoQ) came below our estimates of 10.7%. Other expenses (+24% QoQ) was higher due to higher marketing spends for Ronin & i-Qube, and ad spends done in the festive season. PAT came in at Rs 4bn (+27% QoQ, PLe: Rs 4.1bn).

Key takeaways

(1) Robust demand outlook as supply issues eases out: Management remains confident of outperforming the industry as semiconductor issue is now largely resolved. With this, its premium bikes - Raider, Apache and Ronin are expected to do well. It highlighted that rural demand is picking up. However, international markets are witnessing slowdown due to inflation and currency devaluation. Inventory is currently at 1 month levels.

(2) EV ramp-up in focus ahead: i-Qube has been witnessing strong demand (average monthly volume of 5.6k from Jun-Oct22, 8.1k in Oct-22) and currently has an order book of 25k units. Management aims at ramp-up volumes up to 10k units/month by the end of Dec-22 and further increase to 25k units/month by Mar-23. The company has planned a series of EV

launches over the next couple of years.

(3) Margin expansion in the quarters ahead: Management expects EBITDA and margin expansion, going ahead, led by price hikes (1% taken in 2Q and 1.1% in Oct-22), increase in share of premium bikes (demand not met in 2Q due to semiconductor non-availability), and exports.

EV ramp-up in focus

According to thr brokerage, TVS' revenue at Rs 72.2bn (+20% QoQ) came 5% ahead our estimates led by better-than-expected ASPs (Rs 70.2k, +6% QoQ) on the back of improved volumes for premium bikes and price hikes. However, EBITDA margin at 10.2% (+20bps QoQ) came 50bps lower than our estimates owing to higher marketing spends for Ronin/i-Qube and ad spends during the festive season. Management remains confident of growing ahead of the industry as semiconductor availability is now largely sorted out. Demand for i-Qube remains robust and TVS aims at average monthly volumes of 10k by Dec-22 (8.1k in Oct-22) and 25k by Mar-23. Management highlighted strong product

pipeline for ICE and EV models.

Buy for a target price of Rs 1,275 per share

"We believe TVS will be able to grow ahead of the industry and sustain its momentum, led by (1) new product launches in ICE & EV segments along with its revamped product portfolio (2) strong exports and premiumisation and (3) margin protection through cost reduction efforts and price hikes. We raise our estimates by 9% each for FY24/25 and target multiple to 26x (24x earlier) to factor in strong 2Q performance and improved outlook. Maintain BUY, with a TP of Rs 1,275 at 26x Sep-24E EPS and Rs 33 for TVS credit," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.