Broker’s call: TVS Motor (Reduce)

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Target: ₹1,627

CMP: ₹2,056.10

TVS Motor Company’s Q4-FY24 EBITDA rose 36 per cent y-o-y and was flat q-o-q at ₹930 crore, 9/5 per cent above our/Bloomberg consensus estimates, respectively. Lower raw material costs and other expenses helped improve the EBITDA margin by 13 bp q-o-q.

Adjusted for one-off subsidiaries’ investment’s mark-down loss of ₹46 crore, PAT growth of 2 per cent q-o-q was above our/Bloomberg consensus estimates. Management indicated net debt reduction of ₹1,000 crore in FY24 with the help of strong operating cash flow. Investment in the subsidiaries stood at ₹310 crore in Q4, as their EBIT loss spiked to ₹200 crore.

The sustained domestic 2W market share gain by TVS Motor in recent times is impressive along with EV dominance, despite subsidy cuts. However, the worsening capital allocation policy is not factored in with the current rich P/E and P/BV valuations being above +2SD.  New spending on Norton, management feels, will lead to new launches in FY26F.

We retain our Reduce rating on it with a higher SOTP-based target price of ₹1,627 or 30x FY26F EPS and TVS Credit’s valuation at 1.5x P/BV.

Upside risk: Strong recovery in the domestic market or industry’s export volume recovery.