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Last Updated : Jul 23, 2019 11:21 AM IST | Source: Moneycontrol.com

Brokerages bearish on TVS Motor, cut price target after Q1 earnings

The management sounded cautious on the industry, saying 2-wheeler growth is expected to remain negative for rest of fiscal due to muted economic activity

 
 
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Shares of TVS Motor Company after most brokerages remained bearish on the stock and slashed price target, citing weak management commentary.

The two-and-three-wheeler maker's EBITDA rose 17.4 percent and margin expanded 60 bps YoY on lower raw material cost and cost-cutting initiatives in the first quarter. Revenue grew 7.2 percent but profit declined 2.9 percent compared to year-ago.

The management sounded cautious on the industry, saying 2-wheeler growth is expected to remain negative for rest of fiscal due to muted economic activity.

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This dampened sentiment and dragged stock to the lowest level since December 2016. It tanked 5 percent intraday to Rs 361.25 intraday on July 23.

 

Here is what brokerages say about stock after Q1 earnings:

Brokerage: Credit Suisse | Rating: Neutral | Target: Rs 360

Credit Suisse upgraded its rating on TVS Motor to neutral from underperform as its target now offers limited downside, but it slashed target price to Rs 360 from Rs 390 per share after cut in earnings estimates by 10 percent for FY20/21.

On both scooters and motorcycles, the company continued to outperform the industry. Channel inventory remained about five weeks due to a slowdown in demand.

Brokerage: Citi | Rating: Sell | Target: Rs 360

Citi retained its sell call on the stock and cut price target to Rs 360 from Rs 430 as it reduced FY20-22 EPS estimates by 1-4 percent.

Gross margins drove operational beat but the management commentary on industry growth is negative. Sustained weakness in 2-wheeler demand is a downside risk.

Citi increased its margin estimates as it thinks that gross margin expansion is credible. It also increased depreciation and interest expense over FY20-22 post Q1 trends.

Brokerage: Kotak Institutional Equities | Rating: Sell | Target: Rs 300

Kotak reiterated its sell call on the stock saying the stock is expensive at 26x FY21 EPS estimates, and slashed price target to Rs 300 from Rs 350 per share as it cut FY20 and FY22 EPS estimates by 8-17 percent.

Kotak expects 6-7 percent volume growth in FY20-22 and 2-wheeler industry to decline in FY20.

Brokerage: Ambit | Rating: Buy | Target: Rs 477

Ambit maintained its buy call but slashed price target to Rs 477 from Rs 513 as it cut volume estimates by 4-6 percent for FY20/21 on a weak economic environment.

On earnings, it said margin surprised positively with gross margin up 80 bps YoY, aided by lower raw material costs, cost reduction and favourable forex.

Brokerage: Nomura | Rating: Reduce | Target: Rs 352

Nomura maintained reduce call on the stock as valuations remained expensive at current levels. It cut the target price to Rs 352 per share on weak outlook.

Volumes are expected to be under pressure over FY20-21, though Q1 was better on lower input costs.

Brokerage: CLSA | Rating: Sell | Target: Rs 360

Company's Q1 EBITDA up 11 percent YoY is a 4 percent beat, but CLSA remained cautious on 2-wheeler industry given weak demand and regulatory cost push may impact demand as well.

TVS has cut its FY20 industry outlook from 6-8 percent YoY growth to a YoY decline now.

CLSA believes the company's margin will remain under pressure given the big regulatory cost impact. It maintained sell call as despite a sharp fall in stock price.

Brokerage: Jefferies | Rating: Hold | Target: Rs 460

Jefferies has hold rating on the stock with a target price at Rs 460 after EBITDA and margin surprised positively driven by better gross margin.

Management attributed this to lower raw material costs and cost reduction initiatives. Better forex realisation in exports also helped earnings.

Disclaimer: The views and investment tips expressed by brokerages on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Jul 23, 2019 11:21 am
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