Volume growth, valuation concerns to cap gains in TVS Motor stock

Auto major TVS Motor Company reported a healthy set of financials for the March quarter on both the revenues and margin fronts. Reported revenues were up 16.9 per cent over the year-ago quarter and were largely volume-led, given the marginal increase in average unit prices. Operating profit margins too were up 262 basis points to 14 per cent.

 

Adjusted numbers for the quarter, given the recognition of production-linked incentives in Q4, were broadly in line with Street estimates.

 

Despite the Q4 show, the stock was the biggest loser in the BSE 100 index, falling 3.6 per cent at close, given the near-term volume worries for the sector, underperformance in the motorcycles segment, and expensive valuations.

 

The company expects the domestic two-wheeler sector to grow at a similar pace as FY25. The internal combustion-based two-wheeler segment grew at 7 per cent last year. While demand is expected to moderate in the June quarter, a recovery is expected, led by a normal monsoon, repo rate cut, and income tax cut.

 

While the launch of Jupiter 110 is expected to support market share gains in scooters going ahead, the company has been falling behind in the motorcycle segment. Aniket Mhatre of Motilal Oswal Research points out that in motorcycles, for the first time in many years, TVS Motor has underperformed the industry in FY25. Further, it has underperformed in the 125cc segment, which has been a key growth driver in recent years. What could keep volumes under pressure is the muted demand environment in the domestic market post the festive season.

 

The other key moving part is exports. Export volumes for the company were up 31 per cent over the year-ago quarter and 16 per cent sequentially. The gains, led by new launches, were driven by a strong 38 per cent Y-o-Y growth in the motorcycle segment, though this was partially offset by the 27 per cent decline in the scooter business. TVS Motor management is hopeful of robust demand in Latin America and a recovery in volumes in key African markets and Sri Lanka.

 

Rishi Vora of Kotak Institutional Research expects export growth momentum to sustain, albeit at a slower pace in FY26, on the back of a favourable base in the African region, steady performance in the Latin American region driven by expansion in the distribution network and brand activation efforts, and the opening up of the Sri Lankan market.

 

The brokerage expects the company to deliver 10–11 per cent annual growth in export volumes over the FY25–28 period, while pointing out that there have been geopolitical tensions and growth challenges in the Middle East and the Bangladesh market at the current juncture.

 

Though most brokerages are positive on the company, some are not putting out buy calls given valuations. Motilal Oswal Research has a neutral rating and believes that at 42 times FY26 earnings per share (EPS) estimates, most of the positives are already priced in.

 

Though Kotak Research expects TVS Motor to outperform and gain market share across most product segments, driven by newer product launches and strong brand positioning, and has baked in margin improvement and market share gain, it has a sell rating on the stock.

 

This is because valuations at 41 times FY26 earnings estimates are in the expensive territory.

 

However, some brokerages have upgraded the stock or revised their EPS upwards. Nuvama Research has increased its FY26–27 EPS by 3 per cent each, led by higher revenue/margin assumptions. It has retained a buy rating citing revenue growth of 12 per cent and earnings growth of 24 per cent over FY24–27.

 

Emkay Research has upgraded the EPS by 6.6 per cent for FY26 and 5.9 per cent for FY26 and FY27 respectively, given ongoing market share gains across growth categories of premium motorcycles, scooters, exports, and electric vehicles, with portfolio actions expected to ensure continued outperformance.