Nomura upgrades TVS Motor to buy, raises target price by 53%

TVS Ronin | Rs 1.49 lakh | Launched in July, the TVS Ronin is a direct competitor to the Royal Enfield Hunter 350.

TVS Motor has been upgraded from “neutral” to “buy” by brokerage firm Nomura and target price raised 53 percent from Rs 903 to Rs 1,382.

The stock is trading at Rs 1,112.35, so the upside seen is around 24 percent. The sentiment has improved largely on the company’s new launches and weakening competition.

In their November 7 report, the brokerage’s analysts said that their new target price has been set with a higher P/E multiple of FY25E earnings. They raised the P/E from 18x to 25x FY25E earnings.

The Chennai-based automaker seemed to be better placed against competition, particularly against startups, with funding and policy advantages waning for the latter.

The analysts wrote:

1) We have been mainly concerned about high competitive intensity from new startups; however, we believe that funding availability will not be easy for most of them going ahead. Also, many of them may struggle with stronger monitoring on value addition for FAME-II incentive, and the benefit of PLI  (~15 percent of ASP) will not be available to them.

2) TVS’s new launches have received good reception, while most of the new launches by incumbents have been unsuccessful. It also has a well-planned EV strategy at a more attractive price

3) We estimate 19 percent EPS CAGR over FY23-25F and our estimates are ~20 percent ahead of consensus.

Also read: Why does TVS Motor command such high valuation compared to peers?

The second phase of Faster Adoption and Manufacturing of Electric Vehicles in India (FAME-II) was launched in 2019, with an outlay of Rs 10,000 crore to fastrack EV usage.

To avail benefits under this scheme, 50 percent of the value addition must be done locally. Monitoring on this aspect has tightened and reports indicate that startups are facing the heat.

Subsidies are being held back and this is affecting cash flows of these startups, and this could put them at a serious disadvantage over bigger players such as TVS Motors.

Also read: TVS Motor vrooms past Hero MotoCorp to be 6th most valued auto company

Monitoring has also been intensified of vehicles produced under the production-linked incentive (PLI) scheme, which could again weigh on startup’s bottomline and, according to Nomura, that translates to 15 percent of the average selling price (ASP) of these firms.

TVS Motors posted healthy numbers for the September quarter. Its net profit rose 47 percent year on year to Rs 407 crore in the quarter ended September.

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