Brokerages stay bullish on TVS Motor stock despite Q2 miss but trim target price; here’s why

Shares of TVS Motor Company, one of the country's leading two-wheeler manufacturers, tumbled 3.2% to ₹2,480 in intraday trade on Thursday, October 24 as the September quarter results for fiscal 2025 (Q2 FY25) fell short of Street expectations.

Following the company's performance, analysts largely maintained a positive outlook on TVS Motor though some trimmed their target prices for the stock due to increasing competition in the electric vehicle (EV) and mid-weight motorcycle categories.

Domestic brokerage firm Axis Securities reduced its target price slightly on the stock to ₹2,890 apiece from ₹2,900 earlier. "We expect the company to deliver a strong ROCE ranging between 23%-26% over the next few years. With the competitive intensity increasing over the next few quarters in the EV and mid-weight motorcycle category, we value it at a sustainable premium P/E multiple of 31x on Mar’ 27 core EPS (earlier 33x on Sep’ 26 EPS) and other investments at 1x P/BV and TVS Credit Services at 1.5x P/BV on FY24," said the brokerage. 

Global brokerage firm Jefferies maintained its 'buy' rating on the stock but lowered its target price to ₹3,270 per share.

Meanwhile, Kotak Institutional Equities retained its 'sell' rating on the stock, citing expensive valuations, while raising its target price to ₹1,850 from a previous target of ₹1,800.

While Kotak believes TVS Motor's medium-term growth prospects remain strong, driven by robust growth in EV two-wheeler volumes due to new product launches and network expansion, steady demand trends in the internal combustion engine (ICE) two-wheeler and three-wheeler segments, and a gradual recovery in export volumes, the stock's elevated valuations prompted it to maintain their prior rating.

"The company continues to outperform in the domestic ICE segment, and we expect newer launches in the EV segment to aid the company improve its market share. However, growing competitive intensity in the EV 2W space (mass market launches and discounts) and increased losses from subsidiaries (ex-TVS Credit) need to be monitored," said Kotak.

On the other hand, Motilal Oswal retained its 'neutral' rating on the stock with a target price of ₹2,160 per share. The brokerage noted that the recently launched Jupiter 110 has been well received by customers and is likely to help TVS Motor gain market share in scooters in the upcoming quarters. 

However, it pointed out that the company has underperformed the industry in motorcycles during the first half of the year for the first time in many years. More importantly, TVS Motor has lagged in the 125cc segment, which has been a key growth driver in recent years. Furthermore, the export outlook, particularly in Africa, remains weak, the brokerage added.

Q2 earnings snapshot

The company for the September quarter reported standalone revenue from operations of ₹9,228 crore, reflecting a year-on-year (YoY) increase of 13% and a quarter-on-quarter (QoQ) improvement of 10%. This growth was primarily driven by a 13% YoY increase in volumes, although the average selling price (ASP) experienced a slight decline of 1% YoY.

EBITDA surged by 20% YoY and 12.5% QoQ to ₹1,080 crore, mainly due to gross margin expansion, supported by ongoing cost reduction efforts throughout the year, which were partially offset by higher personnel costs.

On the bottom line, profit after tax (PAT) rose by 3.5% YoY and 14.8% QoQ to ₹663 crore. During the quarter, domestic sales of two-wheelers (2W) grew by 15% YoY, outperforming the industry average of 11% YoY growth.

Overall, two-wheeler and three-wheeler sales, including exports, surged by 14%, achieving the highest quarterly sales ever at 12.28 lakh units for the quarter ended September 2024, compared to 10.74 lakh units during the same period in September 2023.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.