TVS Motors turned “electrification risk into an opportunity”, 47% upside expected: Jefferies

TVS Motor is turning electrification risk into an opportunity and is well-placed to ride an industry recovery, according to Jefferies.

The brokerage sees a 47 percent upside with a target price of Rs 1,550. The stock was trading at around Rs 1,061 at 10.30 am.

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TVS has risen to second position in E2Ws (electric two-wheeler) in recent months and has increased its market share in E2W to match the company’s market share in ICE scooters (of 24 per cent), pointed out the analysts wrote the analysts.

“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. We believe TVS, through its timely focus on electrification, is turning the risk of EVs into an opportunity,” they wrote.

TVS has also improved its ICE franchise, according to them. “TVS, with its attractive product propositions, has gained market share over FY17 to YTD-FY23: 1) from 15% to 24% in scooters, 2) from 11% to 15% in 125cc+ motorcycles (down from 18% in FY22 though), 3) from 16% to 25% in 2W exports, and 4) from 21% to 42% in 3W exports. Improving franchise has also boosted TVS’s pricing power,” they wrote.

The company is also catching up with peers in margins delivered, they added. Its EBITDA margin has expanded from just 6.4% in FY10-17 to 10% in the last six quarters; and the analysts expect 11.3-11.5% in FY24-25E.

While weak two-wheeler demand in both domestic and export markets is hurting TVS, the analysts believe that the company is well-placed to benefit as industry recovers.

Also read: Strong numbers from auto makers, sector outlook gets a lift

“TVS is facing cyclical demand pressures in both India and exports. We believe the abnormal 35% fall in Indian 2Ws over FY19-22 has created a very favorable base, and we expect 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 visibility of demand recovery is low; however, 2W export downturns have historically been shallow due to low vehicle penetration in most markets,” they wrote.

The brokerage has cut FY23-25E EPS by 3% but it expects 38% CAGR over FY23-25E. With 19x FY25E P/E, TVS is attractive and is among the brokerage’s top Buys in autos, stated the report.