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Reliance Securities
TVS Motor (Reduce)
CMP: ₹370.1
Target: ₹351
Aided by better gross margin, TVS Motor has delivered broadly an in-line performance in Q1 FY20, while PAT surpassed our estimate by 4 per cent. Its revenue and Ebidta grew by 7 per cent y-o-y (+2 per cent q-o-q) and 11 per cent y-o-y (+16 per cent q-o-q) to ₹4,470 crore and ₹360 crore, respectively. However, its PAT declined by 3 per cent y-o-y (+6 per cent q-o-q) to ₹142 crore partially impacted by higher tax rate.
TVS Motor’s Ebidta margin expanded by 26 bps y-o-y and 93 bps q-o-q to 8 per cent versus our estimate of 7 per cent, partially aided by new accounting standard and lower RM/Sales expenses. Volume declined by 0.5 per cent y-o-y (+2 per cent q-o-q) to 9,23,235 units, while average realisation grew by 8 per cent y-o-y due to price hike, higher export contribution and better product-mix.
As adverse impact of widening monsoon deficit on rural sales, price hike due to BS-VI implementation and competitive intensity would continue to drag TVS Motor’s profitability, we reiterate our ‘reduce’ recommendation on the stock with a revised target price of ₹351 (from ₹435 earlier).
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