Broker's call: TVS Motor (Underperform)

Target: ₹569

CMP: ₹640.15

In Q3-FY21, TVS Motor Company has reported highest ever quarterly revenue of ₹5,390 crore (up 30.7 per cent/17.1 per cent y-o-y/q-o-q). This was led by a 20 per cent y-o-y increase in volumes and 8.5 per cent increase in ASPs on account of blended price hike of 1 per cent in October 2020.

The company undertook an additional blended price hike in January 2021 of 2 per cent (in both domestic & export markets). The demand recovery has been led by premium brands resulting in an improvement in mix to 37 per cent (vs 34 per cent in Q3-FY20).

Management expects the recovery momentum to sustain going forward.

During the quarter the sector as a whole witnessed sharp recovery in demand driven by rising preference for personal mobility, strong export demand and revival in rural economy. We expect TVS to benefit from the recovery in sector and witness margin improvements from better operating leverage and cost reduction initiatives.

While we revise our estimates higher on account of improved earnings prospects, the recent rally in stock price has priced in all near term positives leading to expansion in trading multiple.

At CMP the stock is trading at 29x & 25x its FY22E & FY23E EPS. We maintain our rating on the stock as an Underperformer with a revised TP of ₹569.