TVS Motor: From March lows, this stock has rallied 106%; this is what Jefferies and Prabhudas Lilladher has to say

Since the start of March, shares of TVS Motor Company have increased exponentially from ₹530.10 to a record level of ₹1,094.40, representing a multi-bagger return of 106.45%. The Nifty has only increased by 8.68% during the same time period. On average stock jumped 14.45% every month. 

The stock has not only outperformed the Nifty but also the auto sector as a whole, which has performed exceptionally well since the year's beginning. This two-wheeler major crossed the ₹1,000 level for the first time on September 01 this year and climbed further to reach an all-time high of ₹1,094.40. Following the rapid rise in the stock price, the market capitalization of stock surpassed ₹50,000 crore.

Two-wheeler companies have been negatively impacted by rising raw material prices since the beginning of 2022, which has affected their operating margins. TVS Motor increased prices multiple times in 2022 to counteract rising commodity prices. However, as commodity prices appear to be levelling off, brokerages anticipate double-digit earnings growth in the coming quarters.

The company registered a growth of 9% in September 2022 with sales of 379,011 units as against 347,156 units in the same month in 2021. Domestic two-wheeler sales grew from 244,084 units in September 2021 to 283,878 units in September 2022, a 16% growth.

Motorcycle sales were relatively flat at 1,69,322 units (up 2 per cent) in the month as opposed to 1,66,046 units in September last year. Scooter sales were higher in comparison, with 1,44,356 units sold in the month, up 39% from the previous year. Three-wheeler sales of the company registered 18% growth during September. Sales rose from 14,645 units in September 2021 to 17,282 units in September 2022, according to media reports.

Following the release of sales numbers, global brokerage firm Jefferies has upgraded the stock to 'buy'.

TVS has operated at significantly lower margins than peers for the majority of the last decade but has closed the gap in the last two years, owing to an improved franchise, better pricing power, and a higher share of exports. "We expect its EBITDA margin to improve further from 9.4% in FY22 to 12.2% in FY24, driven by a sharp recovery in Indian 2W demand along with easing commodity prices," said Jefferies.

For the June ending quarter, the company reported its highest-ever standalone net profit of ₹320.5 crore. The company had posted a standalone profit after tax of ₹53.1 crore in the year-ago period.

The company clocked the highest revenue of ₹6,030.9 crore in Q1FY23, up from ₹3,935.9 crore in the same period last fiscal. Total expenses during the quarter were higher at ₹5,409.2 crore, as against ₹3,660.6 crore in the same period a year ago.

Following the June quarter number, domestic brokerage firm Prabhudas Lilladher believes TVS will sustain growth momentum and grow ahead of the industry. “The growth was driven by new product launches in the ICE and EV segments along with its revamped product portfolio, strong exports, premiumisation and margin protection through cost reduction efforts and price hikes,” it said.

The brokerage firm marginally increased its EPS estimates by 2% each for FY23 and 24 to factor in healthy Q1 performance.

Going forward, the management of TVS anticipates a healthy festive season demand driven by favourable monsoons and rural areas benefiting from price increases.

An average of 40 analysts polled by MintGenie 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.