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Chola Securities
TVS Motor (Underperformer)
CMP: ₹364.25
Target: ₹328
TVS Motor’s revenue declined by 20.6 per cent y-o-y (-15.6 per cent q-o-q) to ₹3,481.4 crore on account of a 30 per cent y-o-y/22.9 per cent q-o-q decline in volumes in 4QFY20. However, the realisations improved by 13.8 per cent y-o-y driven by favorable product mix (85 per cent dispatches in 4QFY20 were BS-6). For FY21 management remains optimistic on volume recovery in 2HFY21, driven by Covid-forced social distancing norms which are likely to push demand for personal vehicles, specially in premium and entry level segments.
Valuation: The outlook for first half of FY21 remains challenging on account of staggered opening of the lockdown and weak demand for higher priced BS VI models. Further margin expansion would depend on the continued implementation of cost control strategy of the company coupled with lower cost of raw materials. However, a healthy monsoon, better Rabi crop and improving liquidity conditions are expected to provide the support for volume growth. We arrive at a target price of ₹328 based on P/E of 22.8x FY22EPS and upgrade the stock to an ‘underperformer’ rating.
Risks: Slower than expected recovery in volumes; Supply constraints for BS-VI components.
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