Prabhudas Lilladher recommended hold rating on TVS Motors with a target price of Rs 474 in its research report dated May 02, 2019.
Prabhudas Lilladher's research report on TVS Motors
We are downgrading our rating from Accumulate to Hold due to sustained disappointment on margins and weak industry outlook. For Q4FY19, TVS motor's revenues grew ~10% YoY, ahead of our expectations, to Rs43.8bn. However, its operating performance disappointed with EBITDA margins at 7%, against PLe of 8.3%. Management anticipates a marginal growth for the industry over FY20 while TVS is expected to continue to outperform the industry with growth being driven by success of the new launches (Ntorq and Radeon) and strong outlook for exports. While the management also expects improvement in margins on the back of commodity costs softening along with cost reduction efforts, given FY19 margins at 7.9%, we remain cautious on the margin outlook, especially with the incremental costs related to the implementation of BSVI norms in a muted demand environment wherein full pass-on of these costs might be challenging. Factoring in the above, we have built-in overall volume growth of ~8%/5% and margins at 8.4/8.8% for FY20/21E respectively.
Outlook
We arrive at price target of Rs474, based upon a PE of 22x (earlier 24x) FY21E.
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