TVS Motor faces market share threat, limited scope for margin expansion, says Antique Broking; downgrades stock to Sell
Brokerage firm Antique Stock Broking downgraded the rating on TVS Motor Company shares to ‘Sell’ from ‘Hold’ earlier as it believes all the positives have already priced in, making risk-reward unfavorable.
The brokerage, however, raised the target price on TVS Motor shares to ₹1,729 apiece from ₹1,616 earlier. It models in a 12.5% volume CAGR over FY23–26E and builds in a margin of 12% for FY26.
The key risks for the company include increasing competitive intensity in the electric vehicles (EV) segment leading to market share losses and exerting pressure on profitability; delay in export pick-up; and foreign investments not yielding returns leading to the need for funding losses.
TVS Motor share price traded over a percent lower on Tuesday. The stock fell as much as 1.59% to ₹2,005.75 apiece on the BSE.
“TVS Motor Company faces a threat to its market share in the domestic two-wheeler segment due to the risk of increasing competitive intensity and its lack of presence in the fastest-growing mid-weight category,” Antique Stock Broking said in a report.
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Further, exports continue to remain subdued due to the macro challenges in key African markets.
“We believe the next leg of export growth will be led by penetration into the LATAM markets which will take some time to come through. TVS has been the frontrunner in the EV space amongst the incumbents. However, we believe with the other OEMs launching products and expanding distribution, we will see competitive intensity increasing in the space further posing the challenge for TVS,” said the brokerage.
It also expects limited scope for TVS to expand its margin as most of the raw material benefits have come through. Going ahead, the levers for margin expansion are only through operating leverage benefits, mix improvement, and pricing.
With increasing competitive intensity, the brokerage believes TVS will be fraught with limited pricing power. It builds in a margin of 12% in FY26. Further, the increasing share of Electric two-wheelers will also lead to profitability pressures.
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Additionally, TVS Motor Company has heavily invested in foreign subsidiaries over the last three years and has also guided for a total investment of ₹800–900 crore in FY24 in foreign subsidiaries for building capacities and developing products.
Analysts believe the company might need to fund losses as it is in a product development stage and there is no certainty that its products will succeed. Hence, it will be crucial to monitor the losses in the foreign subsidiaries going ahead.
Also Read: Bajaj Auto, TVS Motor: Here’s why Goldman Sachs expects better than estimated earnings
Meanwhile, Goldman Sachs has also raised target price on TVS Motors by 14% and revised EPS estimates for FY25 and FY26 upwards by 3.7% and 10.3%, respectively.
“We update our model for improving the mix of Apache premium range of motorcycles, declining EV battery prices, ongoing benign raw material prices, slight rupee depreciation supporting export business profitability, and quarterly roll forward,” Goldman Sachs analysts said.
At 2:40 pm, TVS Motor Company shares were trading 1.05% lower at ₹2,016.90 apiece on the BSE.
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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 09 Jan 2024, 02:36 PM IST
