Sharekhan expects TVS Motors to benefit from a swift recovery in urban demand, led by gradual reopening of urban centres and new product launches. Moreover, the premium motorcycle segment is expected to do well in the near term. TVS Motors premium motorcycle launches (Apache variants) and scooter (Jupiter and Ntorq) have received positive responses in the past. Successful launches could lead to market share gains and higher volume growth as compared to the industry. Sharekhan maintains Buy rating on TVS Motors with a revised price target of Rs 688.
 
TVS Motors Q3 FY21 results beat expectations as rise in EBITDA margins was higher than estimates. A faster than expected recovery in key markets drove up exports; the number could have been higher, but for the unavailability of containers owing to the COVID-19 pandemic. Exports grew by 31% yoy in Q3 FY21, while domestic sales grew by 21% yoy. 

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Strong growth was driven by recovery in key markets and tapping of new geographies, which we expect would sustain going forward. TVS Motors operating margins are expected to remain firm on the back of better product mix, higher share of premium bikes in domestic and export markets, operating leverage benefits and cost reduction initiatives. TVS Motors is witnessing a strong recovery in domestic demand, with sales turning positive from September 2020. Domestic demand has improved, driven by strong rural sentiments and increased preference for personal transport.
 
TVS Motors has maintained its capacity expansion guidance for FY2021E to Rs 500 cr. Capex will be largely on product development and increasing capacity in export markets. Moreover, the company remains committed to invest in new and emerging technologies. Given its strong position in India and globally, Sharekhan expects its earnings to grow strongly by 39.2% CAGR during FY2021E-23E, driven by 13.9% sales CAGR (FY2021E-FY2023E) and a 120 bps improvement in EBITDA margin.
 
TVS Motors Key risk:
 
The TVS Group is considering levying a royalty on group companies. TVS Motors is the flagship company of the group and any levy would adversely impact margins. Moreover, price competition in the two-wheeler industry can affect TVS Margin’s margins and, thus, profitability.