TVS Motor hits over two-year low on weak Q1 results

Shares of TVS Motor Company hit an over two-year low of Rs 361, down 5 per cent in Tuesday's early morning trade on the BSE after reporting a 3 per cent decline in net profit at Rs 142 crore for the first quarter of fiscal 2020 (Q1FY20), on muted volume, and higher depreciation, interest cost and tax rate.

The stock hit its lowest level since January 3, 2017.

The two-wheeler company reported a revenue growth of 7.2 per cent to Rs 4,470 crore in June 2019 quarter from Rs 4,171 core in the quarter ended June 2018. EBITDA (earnings before interest, tax, depreciation and amortization) for the quarter under review increased from 7.7 per cent in Q1FY19 to 8 per cent in Q2FY20.

Volumes declined by 1 per cent year-on-year (YoY), after several quarters of increase, led by a 4 per cent YoY fall in domestic 2W volume, while exports remained strong, growing by 10 per cent YoY.

The management expects 2W industry volume to decline in Q2 and H2FY20 led by below-normal monsoon, slower-than-expected economic recovery, high channel inventory, and BSVI transition challenges. TVS Motor, though, guides to outperform the industry in both domestic and international markets led by a strong portfolio and new launches.

Analysts at Reliance Securities said the adverse impact of widening monsoon deficit on rural sales, price hike due to BS-VI implementation and competitive intensity would continue to drag TVSL’s profitability. The brokerage firm maintains ‘reduce’ rating on the stock with target price of Rs 351.

“While scaling up of key brands (Jupiter, Apache) and new launches (Ntorq 125cc scooter and Radeon commuter motorcycle) may help TVS outperform industry volume growth, the drag from low-growth segments, which account for almost 1/3rd of its volume (commuter motorcycles, mopeds), high marketing investments for budding brands, and heightened competitive pressure amidst major sectoral headwinds will continue to restrict margin expansion,” according to analysts at SBICAP Securities. The brokerage firm reiterated ‘sell’ rating on the stock with target price of Rs 360 per share.

Over the long term, analysts at Antique Stock Broking expect TVS to grow at more than 10 per cent pace on a sustainable basis, backed by superior portfolio alignment to key domestic industry growth themes and strong penetration-led exports growth.

At 09:52 am, TVS Motor was trading 2 per cent higher at Rs 372, as compared to 0.06 per cent rise in the S&P BSE Sensex. The trading volumes on the counter more than doubled with a combined 3.96 million shares changing hands on the NSE and BSE so far.