Buy TVS Motors Company Ltd For Target Rs.1,030 - Anand Rathi Share and Stock Brokers
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Improving off-take, margin betterment; maintaining a Buy
For TVS Motors, volume off-take continued to improve sequentially in Q1 FY22 as it narrowly waded through semi-conductor supply constraints. Demand continues to improve for motorcycles and scooters and the company expects 9M FY23 to be significantly better. Also, during the quarter it launched a new motorcycle, which received a positive response. With a ramp-up in iQube expected in the near term, we expect strong growth. Accordingly, we maintain our Buy rating at a revised TP of Rs1,030 (25x FY24e)
Improving demand sentiment for two-wheelers. Q1 FY23 volumes grew 6% q/q to 906,791 units, while revenues grew 9% q/q, 53% y/y, to Rs60.1bn. Semi-conductor shortages prevailed; however TVS added a vendor and production improved from Jun’22. The company launched TVS Ronin catering to the premium lifestyle segment, and refreshed Ntorq and Radeon with new features. In EVs, iQube volumes were ~9,000 for the quarter (4,500 in Jun’22 and 2,500 in Mar’22) and is now in 83 cities (33 the previous quarter). A ramp-up is expected to 25,000 units a month by Dec’22. It continues to receive excellent feedback from customers and the company now has an order book of ~20,000 units (12,000 last quarter). Accordingly, we expect strong revenue growth of 28% in FY23 and 16% in FY24.
Margin improvement in FY23 and FY24. Despite raw material prices further inching up in Q1 FY23, the 10% healthy margin was maintained. Prices were raised 1.5% during the quarter, though 0.5% under-recovery persists. As supply constraints have started to ease, we expect volumes to pick up in subsequent quarters, driven by better off-take of premium two-wheelers. Accordingly, we expect margins of 10.4% in FY23 and 11% in FY24.
Valuation. We expect a 21% revenue CAGR over FY22-24, and 45% earnings growth, leading to an EPS of Rs39.6. We maintain our Buy rating with a higher TP of Rs1,030 (25x FY24e), incl. Rs41 a share for TVS Credit Services.
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