Buy TVS Motor; target of Rs 339: Prabhudas Lilladher

Prabhudas Lilladher's research report on TVS MotorWhile volume growth was decent for TVS Motors in Q4FY16, results disappointed due to lower‐than‐expected EBITDA margins. This was attributable to higher incidence of marketing costs on account of new model launches and costs related to dealer conference and auto expo. While sales growth was 14.6% YoY as expected, EBITDA margin was 6.3% (lower ~100bps QoQ). Profit growth was 19% YoY to Rs1.18bn, boosted by higher non‐operating income and a lower tax rate. With new launches in the Motorcycle and Moped space, TVS’ management appears optimistic on market share gains and a qualitative improvement in its product portfolio. The company also reiterated its target of attaining a double‐digit EBITDA margin in the medium‐term, which would primarily be a function of operating leverage. Exports, on the other hand, are expected to remain under pressure in the near term. We have marginally lowered our estimates by 2.5%/3.1% for FY17/18 to factor in marginally lower EBITDA. We value the stock at 14.8x Sep’17 EV/EBITDA which is at par with its past two‐year average EV/EBITDA multiple and arrive at a target price of Rs339 share (previously Rs343). At our target price, the stock is at a PE of 25.8x FY17E EPS and 19.2x FY18E EPS. At the current price, it trades at 21.9x and 16.3x, respectively. We maintain “Accumulate” on the stock. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies 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.

Read More