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Business News/ Markets / Stock Markets/  TVS Motor: DAM Capital sees a whopping 97% upside in this stock – key reasons
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TVS Motor: DAM Capital sees a whopping 97% upside in this stock – key reasons

DAM Capital projects TVS Motor to be top exporter with fastest growth, expects notable expansion in EBITDA margin. The brokerage sets record target price of ₹3,051 apiece for the stock.

According to the brokerage, TVS has achieved a significant 19% market share in the E-2W segment during H1FY24, surpassing the market share of internal combustion engine (ICE) vehicles, which stands at 16%. (MINT_PRINT)Premium
According to the brokerage, TVS has achieved a significant 19% market share in the E-2W segment during H1FY24, surpassing the market share of internal combustion engine (ICE) vehicles, which stands at 16%. (MINT_PRINT)

TVS Motor has been on a remarkable upward trajectory, with its shares hitting an all-time high of 1,599 apiece during Thursday's trading session. This surge in the company's stock began in April and continued through all months until September, marking a consistent positive trend. During this period, the shares soared from 1,077 apiece to reach the current value of 1,597, reflecting an impressive gain of 48.28%.

Zooming out, the shares over the last two years have gained 184%. Over the last three years, the shares witnessed a significant surge of 237%. This outstanding performance becomes even more striking when looking back to April 2020, when the stock was valued at 240 per share. Since then, the shares have delivered an astounding return of 562%.

Going forward, the stock's positive trend is expected to continue, as per the projections made by domestic brokerage DAM Capital, which highlights the company's steady rise in exports.

Structural Export Story in Making

The brokerage highlights the company's volume growth in the export market, which has been recording a healthy uptick over the last 5–7 years. In FY23, the company's exports volume contribution reached 29%, despite pressure in global markets.

DAM Capital expects TVS to emerge as the top exporter with the fastest growth over the next decade on the back of a strong product portfolio, geographic expansion, and significant improvement in brand equity in various export geographies in the last 2–3 years.

The brokerage channel checks indicate that the company has been gaining market share from Bajaj Auto in various African markets in the last three years in both 2Ws and 3Ws. In some countries, it said TVS has surpassed Bajaj Auto to become the number one brand.

Further, the company's export growth has consistently outperformed the industry over the last 16 quarters by a wide margin. It has also developed its brand equity in a few newly emerging markets in the UAE, Saudi Arabia, and Gambia, DAM Capital highlighted.

Margin Expansion to 13% in FY26E

The brokerage anticipates a notable expansion in TVS's EBITDA margin, projecting an increase from 10.1% in FY23 to 12.5% in FY25E and a further rise to 13% in FY26E. This expansion will be primarily driven by the expectation of stronger export margins once the market recovers.

Further, additional triggers for the margin expansion are better scale, improved net pricing, and cost savings. The company has been aggressively focusing on cost savings through material cost reduction, owing to value engineering and value addition efforts, localisation, and alternate raw material sourcing, the brokerage noted. 

Gaining Market Share in EVs

According to the brokerage, TVS Motor has achieved a significant 19% market share in the E-2W segment during H1FY24, surpassing the market share of internal combustion engine (ICE) vehicles, which stands at 16%. This indicates that the company is better prepared for the EV transition than its peers. The company is also emerging as the strongest EV player among the incumbents, as per the brokerage. 

The company's clear efforts and focus on the future of the automotive industry have already started paying off, with a higher market share of 19% as against ICE’s share of 16%. The brokerage remained confident on TVS despite the near-term impact on financials due to the inferior margins of the EV business.

Target Price

In light of these growth factors, DAM Capital reiterated its 'buy' rating on TVS Motor with a revised target price of 3,051 apiece, valuing the core business at 35x FY26E to 2,826 and adding 225 for the subsidiaries, implying a 97% upside from the stock's previous closing price of 1,550 apiece.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 12 Oct 2023, 03:33 PM IST
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