Muted outlook may lead to correction in TVS Motor's stock: Analysts

While domestic sales have been lower, exports have remained robust, registering growth of over 24 per cent for the month
TVS Motor reported a 27 per cent fall in domestic volumes for February, the sharpest among domestic two-wheeler peers.


While motorcycle sales, which account, for about a half of overall volumes fell 3.3 per cent, sales of scooters, its second largest segment, fell 30 per cent to 60,000 units.


The ongoing slowdown in the scooter segment, the transition to BS-VI, and supply disruptions because of the coronavirus outbreak have led to a sharp drop in volumes. Hero MotoCorp, too, reported a 68 per cent decline in scooter volumes to just under 19,000 units, while its overall volumes fell 19 per cent in the month.


Even as it peers are still holding some stocks of BS-IV vehicles, analysts say TVS Motor has completely transitioned to BS-VI-compliant units and the new vehicles are 10-15 per cent costlier than the outgoing variants. Traction in the scooter portfolio, be it Jupiter (more than half of scooter volumes) or Ntorq, have been impacted because of the higher prices and the declining scooter sales, say analysts.


While domestic sales have been lower, exports have remained robust, registering growth of over 24 per cent for the month. Exports account for a third of volumes for TVS Motor. Given the fall in crude oil prices and a bigger share of volumes in oil-rich economies, such as Nigeria, sales could be impacted.


Abhishek Jain of Dolat Capital believes there could be volume and margin headwinds for the company, given intense competition, the risk of cyclical downturn in exports, and a steep increase in prices because of the shift to BS-VI.


Most analysts expect volumes to remain sluggish in the first half of CY20.


At the current price, TVS Motor is trading at 24 times its FY21 earnings estimates on expectations of margin expansion and robust earnings growth.

However, analysts say, given the slowdown, the sharp 60 per cent-plus valuation premium to Hero MotoCorp and Bajaj Auto could be difficult to hold on to and the stock should see some correction.

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