Motilal Oswal maintains neutral rating on TVS; keeps target price unchanged at Rs 1,240 a share

Brokerage firm Motilal Oswal Securities has maintained its neutral rating on TVS Motors Ltd (TVS) and kept its target price unchanged at Rs 1,240 a share.

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Brokerage firm Motilal Oswal Securities has maintained its neutral rating on TVS Motors Ltd (TVS) and kept its target price unchanged at Rs 1,240 a share.

Motilal Oswal reported that they recently had a meeting with KN Radhakrishnan, the Director and CEO of TVS, to gain insights into the changing dynamics of the two-wheeler (2W) industry in India, the company’s export operations, and the impact of electric vehicles (EVs) on their business.

TVS Motors said that it expects a rebound in its export volumes during the second half of the fiscal year 2024, and to ensure sustained growth, the company is actively expanding its operations in new markets such as Latin America and the Association of Southeast Asian Nations (ASEAN).

The two wheeler firm predicts a growth rate of 8-10 percent in the domestic two-wheeler (2W) market for FY24 and is strategically targeting consumers looking to upgrade by focusing on premium products. While the reduction in FAME-2 subsidy may have a temporary impact on electric vehicle (EV) sales, TVS is mitigating this by diversifying its product range to enhance market penetration.

Meanwhile, brokerage firm Motilal Oswal said that the anticipated growth in volume is expected to be fueled by the revival of the domestic two-wheeler (2W) market, increased exports, and the introduction of new products such as the Raider, 125CC scooters, and iQube. TVS is benefiting from economies of scale and operating leverage, which has led to consistent double-digit EBITDA margin. However, it’s important to note that around 30 percent of TVSL’s total EBITDA comes from the domestic scooter business, making the company susceptible to potential disruptions caused by the rise of electric vehicles (EVs).

TVS Motor had previously announced that it plans to allocate a capital expenditure (capex) budget ranging from Rs 900 crore to Rs 1,000 crore for the fiscal year 2024. This investment will be utilized for the development of both electric vehicles (EVs) and internal combustion engine (ICE) vehicles.

In the fourth quarter of the fiscal year 2023, TVS Motor successfully delivered 43,000 EVs, leading to an improvement in market share compared to the previous quarter. Currently, the company has an order book close to 30,000 units, indicating strong demand for its electric vehicles. TVS Motor has established a presence in 235 touch points across 135 cities, expanding its reach and accessibility to customers.

Following the reduction of FAME-2 incentives by Rs 30,000 (to Rs 22,000), TVS has observed a decline in electric vehicle (EV) demand in the short term. However, the company has plans to introduce more e-scooter models in the second and third quarters of fiscal year 2024 (2Q/3QFY24) to stimulate demand. Although the iQube model is already generating positive contributions, it currently experiences an EBITDA loss due to upfront investments in areas like manpower and software development, the brokerage house said.

The impact of the EV loss on TVSL’s total EBITDA is estimated to be around 1-1.2 percentage points on blended margins. While there is no immediate need to raise funds, TVSL is considering various options for a potential fund raise in the future, the brokerage report added.