Mixed Brokerage Views Affect TVS Motor Company’s Share Performance

On October 31, shares of TVS Motor Company Limited showed a 0.5 percent decline, trading at Rs 1,600, as brokerages expressed divergent opinions on the company’s prospects. High marketing costs, cash flow concerns, and ambitious electric vehicle (EV) plans were cited as reasons for the bearish outlook on the stock.

Domestic brokerage firm Motilal Oswal, which maintains a ‘neutral’ rating on the stock, set a target price of Rs 1,500, suggesting a potential 7 percent downside from the October 30 closing price. Analysts at the firm emphasized that TVS Motor Company derives 40 percent of its overall EBITDA from the domestic scooter business, making it susceptible to EV disruption. They noted that while better gross margins were observed, high other expenses, attributed to marketing spending on new products launched in Q2 and research and development, offset some of the gains.

Citi analysts issued a ‘sell’ recommendation on the stock with a target price of Rs 1,050. They cited the management’s increasing investments in subsidiaries, leading to cash flow drain, as a concern. The analysts also questioned the ambitious nature of the electric vehicle plans and predicted a slow pace of export recovery.

CLSA, a global brokerage firm, echoed concerns about cash flow depletion due to subsidiary investments. They retained the ‘sell’ rating with a target price of Rs 1,206.

In contrast, Jefferies, another global brokerage, offered a more optimistic perspective, giving a ‘buy’ recommendation with a target price of Rs 2,000. This implies a potential 24 percent upside from the October 30 closing price of Rs 1,608. Jefferies analysts pointed out that TVS Motor Company is well-positioned to benefit from the revival in two-wheeler demand. They also noted that the company’s improving franchise provides room for further margin expansion and forecasted a 35 percent earnings per share (EPS) compound annual growth rate (CAGR) over the period from FY23 to FY26.

In its latest financial report, TVS Motor Company disclosed a standalone net profit of Rs 537 crore, marking a 32 percent increase, for the quarter ending September 30, 2024, primarily due to higher sales. This compared to a net profit of Rs 407 crore in the same period the previous year. Additionally, the company’s revenue from operations for the quarter grew by 13 percent, reaching Rs 8,144.61 crore, as compared to Rs 7,219.18 crore in the corresponding quarter of the previous fiscal year.