Broker's call: TVS Motor (sell)

Target: ₹296

CMP: ₹399.25

Lock-downs impacted volumes while competitive sector dynamics led to market share losses; near term pressure on earnings likely to continue while support to come from recovery in rural demand and new product launches.

TVS Motor’s revenue declined by 68 per cent y-o-y to ₹1,430 crore on account of a 71.1 per cent y-o-y decline in volumes in Q1-FY21. The realisations declined by 2.5 per cent q-o-q owing to adverse product mix.

The company took a price hike of 0.7 per cent to pass on the higher costs of BS-VI. The volume decline during the quarter was attributable to the Covid lock-down that disrupted both demand and production.

For FY21 management remains optimistic on volume recovery in H2-FY21, driven by need for personal mobility owing to social distancing norms, especially in premium and entry level segments. The management expects to beat industry volume growth. The management expects export market to recover by September as more countries are opening and crude oil prices are recovering.

The company faced production challenges amidst good demand resulting in, lean stocks across the market (<30 days with dealers). The management is confident of handling the supply challenges going into August and September by aligning the production to demand levels.