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TVS Motor stock outlook muted over medium term

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ET Intelligence Group: The stock of TVS Motor Company is likely to see limited upside in the medium term, as the country’s leading two-wheeler maker has a rich valuation and it is expected to see a recovery in domestic sales later than projected. The volume outlook has got bleaker after the company’s commentary following the second-quarter results suggested that the domestic volume recovery would be extended to around four quarters owing to uninspiring festive sales. This means the volume growth in the second half of the current fiscal year would mirror the trajectory of the first half, and the stock may continue to face earnings cuts.

The stock is trading at 30 times the company’s one-year forward earnings, one of the highest multiples among the automakers.

The stock outperformed the benchmark index Sensex by 5 per cent in the past three months. The company’s volumes contracted 19 per cent year-on-year to 885,716 units in the second quarter, leading to slippage of 10 per cent in volume in the first half of this financial year.

Domestic sales volumes fell 24 per cent in the quarter to September while export volume rose 6 per cent.

The domestic volumes account for three-fourths of the total volumes of the company. The local volume growth of motorcycles and mopeds slipped more than that of scooters in the July-September quarter.

Motorcycles and mopeds contribute 21 per cent and 18 per cent respectively to the domestic volumes while the rest comes from scooters (35 per cent) and three-wheelers. Investors were hoping that the festival season boost could lead to volume growth in the second half.

This could have helped contain the volume decline for the current fiscal.

However, the commentary of the automaker for the festive season implies that volume growth is unlikely to turn positive for the second half too. TVS Motor’s management said in post-earnings conference that festive season retail volumes remained weak during Navratra and Dussehra and wholesale figures in the second half would remain negative due to inventory correction. Based on the current momentum and reaffirmation by the company’s outlook, TVS Motor is likely to see 8-10 per cent fall in sales this fiscal.

This would be the first negative volume growth since 2013. However, investors expect listless domestic volume growth in the next fiscal as well following the price hike owing to new emission norms, which could be a drag on sales.




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