East India Securities' research report on TVS Motor Company
TVS Motor’s higher-than-estimates Q4FY20 performance was purely on account of a substantial jump in the realisation led by ~85% dispatches of BS6 products, volumes tilted towards exports (32% in Q4FY20 vis-à-vis 22% in Q4FY19) & regulation related price hikes. Despite ~30% volume decline, TVS managed to maintain its EBITDA Margin at 7.0% for the quarter on account of benefits accruing from lower commodity costs. Higher other income (+601% YoY to Rs 251mn) and lower tax rate (-950bps YoY to 17.8%) offset the impact of exceptional costs. The near-term outlook is poor due to demand contraction and supply bottlenecks. We believe, in FY21e, TVS would grow lower than the industry due to downtrading and competitive prices in the entry segment will hurt its Mopeds sales. Exports too will remain weak due to subdued oil prices. In our view, current valuations are elevated and hence we recommend ‘Hold’.
We have factored in all the visible uncertainties related to Covid-19 and built a sharp recovery in FY22e volumes (after two years of high double-digit de-growth). However, we recommend 'Hold' rating due to elevated valuations with a target price of Rs 320 (20x FY22e EPS plus the value of TVS Credit at Rs 37/share).
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