Auto firm TVS Motor Company is Axis Securities' pick of the week. The brokerage has a ‘buy’ call on the stock with a target price of ₹1,450, indicating an upside of 12 percent from the current market price of ₹1,294.65 (as on June 5, 2023).
Promising future in electric vehicle (EV) plans, expected recovery in exports, and competitive positioning in the 2-wheeler segment are some key positives for the stock, noted the report.
The stock has surged over 77 percent in the last one year and 19 percent in 2023 YTD, giving positive returns in 4 of the 6 months of the current calendar year.
The stock is up just around 2 percent in June after a 14.5 percent jump in May and a 5.6 percent rise in April.
The brokerage informed that TVS Motor Company (TVSL) is the 3rd largest 2-wheeler company in India with an annual sale of more than 30 lakh units and annual 2-wheeler (2W) and 3-wheeler (3W) capacity of over 50 lakh and 1.2 lakh, respectively. The brokerage also stated that TVS manufactures the largest range of 2Ws including mopeds, scooters, commuter motorcycles, and premium bikes.
TVS is also India’s 2nd largest exporter with exports to over 60 Countries, it highlighted, adding that the company has four manufacturing plants, three located in India (Hosur in Tamil Nadu, Mysore in Karnataka, and Nalagarh in Himachal Pradesh) and one in Indonesia at Karawang.
Investment Rationale
EV plans: According to Axis Securities, in FY23, the EV industry grew by 3.1 times YoY, and TVS’s FY23 volumes improved to 97,000 units vs 10,000 units in FY22. The current order book of iQube is at 30K units, it added. The brokerage further mentioned that iQube is now present in 235 touchpoints across 135 cities. It further noted that the company will be launching EVs in different customer segments with a complete portfolio, in the range of 5-25 KW in the next 9-12 months, adding that E-3Ws, both passenger and cargo, will be launched in the upcoming quarter. TVS EV customers have access to over 2,000 charging points with TVS having partnerships with various charging network players, the brokerage also stated.
Gradual recovery in exports: As per the brokerage, the company is keeping the right stock for both the domestic and exports market (inventory for 25-30 days). It observed that in FY23, most of the market except the ASEAN market was facing challenges and the company reduced dispatch to match retail. Dispatches will improve MoM going forward. Gradual recovery in exports is expected MoM going forward.
Competitive position: The brokerage further said that TVS’s 125cc segment is continuing to show good traction with robust demand.
"Raider, Ntorq, and Jupiter in the 125cc segment are growing ahead of the industry. Raider has crossed the 30K per month run rate. In the premium segment, Apache is doing well, while Ronin is a special category segment where on average the company is producing 2,000-2,500 units every month and it will go up in the coming months," it informed.
Earnings and sales: TVS Motor posted a 49 percent rise in its net profit at ₹410.27 crore in the quarter ended March 2023 versus ₹274.50 crore in the year-ago period. Its consolidated revenue from operations also rose 19.4 percent to ₹6,604.78 crore for the quarter under review as against ₹5,530.31 crore in the same period last year.
The overall two-wheeler and three-wheeler sales including exports for Q4FY23 came in at 8.68 lakh units versus 8.56 Lakh units in Q4FY22.
Overall, for the financial year FY23, TVS's net profit surged 67 percent to ₹1,491 crore as compared to ₹894 crore in FY22. Meanwhile, its revenue from operations advanced 27 percent to ₹26,378 crore as against ₹20,791 crore in FY22.
In FY23, the overall two and three-wheeler sales of TVS Motor rose 11 percent at 36.82 lakh units as against 33.10 lakh units in FY22.
Outlook & valuation
The brokerage pointed out that TVS has already hit its previous target price of ₹1,300, led by recent events including: i) Macro headwinds subsiding as the US debt ceiling deal is now done which improves visibility towards exports market ii) The recent FAME subsidy cut which may force smaller e-scooter makers to exit the market leading to industry consolidation which will be beneficial for TVS.
The brokerage has also revised its FY25 revenue, EBITDA, and EPS upwards by 7 percent, 10 percent, and 13 percent, respectively, as it now factors in higher export volumes than previous estimates.
"We continue to value the company on 25x P/E on core FY25E EPS and other investments at 1x P/BV. We maintain our BUY rating on the stock and revise our TP upwards at ₹1,450 per share," it said.
