BofA raises TVS Motor stock target to INR 2,670; retains neutral

Published 29/01/2025, 07:14
BofA raises TVS Motor stock target to INR 2,670; retains neutral

Wednesday, BofA Securities updated its outlook on TVS Motor Co Ltd (TVSL:IN), increasing the price target to INR 2,670 from INR 2,625 while maintaining a Neutral rating on the stock. The adjustment follows TVS Motor’s third-quarter performance, which showed an adjusted profit after tax (PAT) of Rs 6.6 billion, marking an 11% year-over-year increase and slightly exceeding expectations due to a margin beat.

TVS Motor’s EBITDA margin for the quarter edged up by 20 basis points quarter-over-quarter to 11.9%, slightly better than BofA Securities’ estimate of 11.8%. This improvement was attributed to a favorable product mix and occurred despite a lack of operating leverage, with volumes down 1% quarter-over-quarter, and continued investment in electric vehicles (EVs) and technology, which saw staff and other expenses rise by over 20% year-over-year.

The report highlighted that TVS Motor is poised to begin accruing benefits from the Production Linked Incentive (PLI) scheme starting from the fourth quarter, which could potentially yield a positive impact of 1 percentage point on margins. Electric two-wheelers currently make up 8% of the company’s revenues. BofA Securities anticipates that these factors, combined with operational leverage, should provide a buffer for margin expansion, even considering the drag from EV investments.

As a result of these considerations, BofA Securities has raised its earnings per share (EPS) estimates for TVS Motor by 3-4%. The revised price objective reflects the firm’s recognition of TVS Motor’s impressive market share gains in a highly competitive environment and the positive outlook for the industry given the increasing trend towards scooterization, which now accounts for 38% of the industry.

Despite recent market sell-offs, BofA Securities finds the risk-reward balance for TVS Motor stock to be appealing. Although valuations are not considered cheap, trading at 31 times forward earnings for fiscal year 2026, the stock is seen as offering solid earnings growth, with a projected 20% compound annual growth rate (CAGR).

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