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TVS Motor Company's stock experienced a dip of up to 5% on Tuesday, following the release of its Q4 results. However, despite this initial market reaction, Jefferies, a leading global investment banking and capital markets firm, projects an 18% upside for the stock. This optimistic outlook is underpinned by several key factors, including a strong quarterly performance, anticipated recovery in domestic demand, continued growth in exports, increasing market share, and improving margins. The company's Q4 net profit witnessed a substantial 76% year-over-year increase, reaching ₹852 crore. Concurrently, revenue experienced a 17% surge, primarily driven by robust electric vehicle (EV) sales. This impressive financial performance serves as a strong foundation for Jefferies' positive forecast. Analyzing the underlying drivers of TVS Motor Company's success provides insights into the company's strategic positioning and future growth potential. The robust EV sales highlight the company's proactive approach to embracing emerging technologies and catering to evolving consumer preferences. This strategic focus on EVs not only contributes to revenue growth but also positions TVS Motor Company as a key player in the rapidly expanding electric vehicle market. Furthermore, the company's ability to achieve significant growth in both net profit and revenue underscores its operational efficiency and effective management strategies. These factors collectively contribute to Jefferies' confidence in the company's long-term prospects and its ability to deliver substantial returns to investors.
Jefferies identifies five primary reasons for their bullish stance on TVS Motor Company's stock. Firstly, the company delivered a strong quarter, with Q4 Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA), excluding prior-quarter Production Linked Incentive (PLI) incentives, rising by 27% year-over-year. According to Jefferies, this performance was in line with their ex-PLI estimates. Volumes increased by 14% year-over-year, while the Average Selling Price (ASP) experienced a sequential growth of 3%. The EBITDA margin also improved by 60 basis points sequentially, reaching a new high of 12.5%. Secondly, while domestic demand has been subdued, Jefferies anticipates a recovery in the near future. Although FY25 remained 6% behind FY19 levels, the two-wheeler industry wholesales grew at a 15% Compound Annual Growth Rate (CAGR) over FY22-25, following a 35% decline in two-wheeler volumes over FY19-22. TVS expects the industry to experience flattish year-on-year growth in April, followed by subsequent improvement. Jefferies forecasts FY26 industry growth to be similar to FY25 (up 8% year-over-year). They remain optimistic about the two-wheeler market, expecting a demand boost from income tax cuts, easing liquidity, and Public Sector Undertaking (PSU) wage hikes in FY27. They project a 10% industry CAGR over FY25-28.
Thirdly, Jefferies expects exports to remain firm. India's two-wheeler export volumes increased by 21% in FY25 after declining by 22% in FY22–24, although they remained 6% below FY22 levels. TVS is optimistic about growth in FY26, supported by a recovery in African markets, although there is some risk associated with increased global macro concerns. Jefferies estimates an 11% CAGR for India's two-wheeler exports over FY25–28. Fourthly, TVS has been steadily increasing its market share. Despite a negative shift in demand away from mopeds, TVS's domestic two-wheeler market share reached an 18-year high of 18% in FY25. During FY14–25, TVS gained a 21% market share in Electric Vehicles and doubled its market share in motorcycles and Internal Combustion Engine (ICE) scooters. Fifthly, TVS's margins have been improving. The company's EBITDA margin has increased from an average of only 6.4% in FY10-17 to 12.3% in FY25 (11.8% ex-PLI). Jefferies anticipates further growth to 14% by FY28, as TVS's pricing power should be further reinforced by growing demand and its strong franchise. Overall, Jefferies expects a 13% volume and 24% Earnings Per Share (EPS) CAGR over FY25-28, and their FY26-27 EPS estimates are 4-10% above the street consensus. Jefferies has a Buy rating for TVS Motor Company's stock, with a price target of ₹3,300, indicating an 18% upside. The stock closed at approximately ₹2700 levels.