Shares of TVS Motor company, a well-known two-wheeler manufacturer in India, have delivered stellar returns to their shareholders. Over the course of one year, the company's shares have risen impressively from Rs. 607 apiece to Rs. 1,035, resulting in an incredible return of 70.49%.
Furthermore, the stock also outperformed the Nifty Auto index by a significant margin of 55.19%, which delivered a return of 15.30% during the same time period.
Between June and October of last year, the stock experienced a one-way spike, rallying 85.45% to hit an all-time high of ₹1,176.90. This two-wheeler major crossed the ₹1,000 level for the first time in September 2022, and it has since held that psychological level to this day.
Going forward, the stock has potential to cross the ₹1,500 level, according to the projections made by global brokerage firm Jefferies.
In its recent note, the brokerage maintained its positive outlook on the stock, citing the company's strong expansion in the EV (electric vehicle) segment.
TVS is now the second largest player in the electric two-wheeler (E2W) market with a 20% market share in March, which is comparable to its 24% market share in ICE scooters. While the company shares limited details on future products, it plans to launch multiple EVs across 2Ws and 3Ws over the next 12-18 months, which should further boost its EV volumes, said Jefferies.
According to the brokerage, TVS is transforming the risk of EVs into an opportunity through its timely focus on electrification.
The company launched its first EV in early 2020, but volumes remained below 1K units per quarter until 1QFY22. It subsequently raised its focus on electrification, increasing capacity, and launching new variants of its E2W iQube.
As a result, TVS' quarterly E2W registrations rose from 2-5K in 2QFY22-1QFY23 to 14K in 2QFY23, further to 23K in 3QFY23, and 33K in 4QFY23 (to date). The electric two-wheelers now account for 5% of TVS's total wholesales in Jan-Feb, according to the brokerage.
However, the company is facing cyclical demand pressures in both India and exports. Jefferies believes the abnormal 35% fall in Indian 2Ws over FY19-22 has created a very favorable base, and it expects industry wholesales to rise at 18% CAGR over FY23-25E after 19% growth in FY23E.
Weakening global macro, FX availability constraints, and regulatory issues are hurting export markets, and the visibility of demand recovery is low; however, 2W export downturns have historically been shallow due to low vehicle penetration in most markets, it noted.
Keeping the lower export volumes, the brokerage trimmed its FY23-25E EPS by 3%, but it anticipates that EPS will nearly triple over FY22-25E. Their FY24-25E EPS estimate is also 12-13% higher than the market consensus.
The brokerage finds TVS's 24x and 19x FY24E and FY25E P/E compared to the last 10Y average of 25x attractive and believes valuations will expand if TVS continues to gain share in E2Ws.
The brokerage has retained its 'buy' rating on the stock with a target price of ₹1,550 apiece, which reflects an upside of nearly 50%
Meanwhile, the company recorded its highest-ever EV sales of 15,522 units in February 2023, breaching the 15,000 mark as compared to 2,238 units sold in the corresponding month of last year.
TVS iQube electric scooters have been receiving a heartening response from customers. It is now available in more than 100 cities across 200 touch points, selling more than 10,000 units for the fourth consecutive month with a strong order pipeline, the company said.
38 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.