Does TVS Motor have a 57% upside? Jefferies thinks so

Jefferies sees TVS Motors’ earnings almost triple over FY22-25 and finds the valuation—21x/17x FY24E/FY25E—attractive.

After TVS Motor’s third quarter results, analysts at Jefferies have stated that they see a 57 percent upside to the stock.

They cited improving profitability profile, buoyancy in the auto category, better product portfolio and the auto major’s increasing market share in the electric-vehicle segment as reasons.

They see TVS Motors’ earnings almost triple over FY22-25 and find the valuation — 21x/17x FY24/FY25 — attractive, given that the last 10-year average is 25x FY24. The brokerage has set a target price of Rs 1,550 based on 30x September 2024, in a January 24 report.

Also read: TVS Motor's Q3 results: net profit jumps 22.5% YoY

“We believe TVS should be a key beneficiary of Indian 2W (two-wheeler) demand recovery. TVS is leading among incumbents in E2Ws (electric two-wheelers) with 17 percent market share in January, and is planning to launch multiple products in the next 18 months. Our FY24-25 EPS is 14-15 percent above the Street. We retain 'buy',” said the report.

What's driving optimism?

The analysts noted that TVS Motor recorded an all-time high EBITDA per vehicle at Rs 7,493, which was a 5 percent sequential and 16 percent annual increase. They said this reflects TVS’ improving franchise.

According to the analysts, the company’s margin profile has become better, growing from 6.4 percent in FY10-17 to 10 percent in the last six quarters. They expect its margins to expand to 11.5 percent in FY24-25, on demand recovery in two-wheelers and the company’s improved product portfolio.

The auto category is expected to get some heavy tailwinds. “Two-wheelers (2Ws) have lagged in recovery but the abnormal 35 percent fall over FY19-22 has created a very favourable base for the segment that is core to Indian personal mobility. We believe 2Ws are ripe for a replacement cycle too. We see 2W industry volumes rising 20 percent in FY23, followed by 18 percent CAGR in FY23-25. On the flip side, exports are facing macro and regulatory headwinds, although TVS expects sequentially better wholesales in Q4. Overall, we see TVS' volumes growing 12 percent in FY23, followed by 16 percent CAGR over FY23-25,” stated the Jefferies’ report.

Also, the company is gaining market share across segments, even furthering its leadership position in the EV segment.

“TVS, with its attractive product propositions, has gained market share across multiple segments over FY17 to YTD-FY23: (1) from 15 percent to 23 percent in scooters, (2) from 11 percent to 14 percent in 125cc+ motorcycles, (3) from 16 percent to 26 percent in 2W exports, and (4) from 21 percent to 42 percent in 3W exports,” stated the report.

TVS has turned aggressive in EVs, increasing capacity and launching new variants of its E2W iQube. Its E2W registrations have risen from 6,000 in March quarter to 16,000 in the September quarter and further to 29,000 in the December quarter; the company expects the March quarter volumes to nearly double on-quarter. TVS is leading among incumbents in E2Ws with 17 percent market share in January (11 percent in December quarter), said the report.