Dolat Capital's research report on TVS Motors
TVS Motor (TVSL)’s Q4FY20 numbers were slightly above estimates led by better than expected realization. Management stated that near term demand continued to be weak due to the Covid-19 crisis, however the recovery in rural demand is encouraging and expect speedy recovery in 2HFY21. We expect TVSL’s extensive product portfolio, strong dealer network in rural areas, and strong brand equity to help the company to capitalize the rural recovery. However, declining market share in motorcycles, falling mopeds volume, and weak export outlook remain an overhang for the stock. In 4QFY20, revenue fell 21% YoY, dragged down by a 30% decline in volume, which was partially offset by higher realization due to BS6 price hike. The adjusted EBITDA margin was 7.6% YoY, compared to our estimate of 7% (onetime incentives paid to dealers to liquidate BS-IV inventory were worth Rs.220mn in 4QFY20).
At CMP, the stock is trading at 33/22x on FY21E/FY22E earnings, which appears expensive compared to its peers, such as Bajaj Auto, HeroMoto Corp, and Eicher Motors (20-40% premium). These peers have a much stronger franchise, strong balance sheets, and healthy returns. This sharp premium to its peers, especially in this uncertain macroeconomic condition, is clearly unwarranted. We maintain our Sell rating on the stock, with a TP Rs.288 (based on 18x of FY22E EPS+ value of TVS Credit Services at Rs.16/share).
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