TVS Motor Q2 Review: Two-Wheeler Demand Revival To Help Shift To Top Gear But Valuations Weigh

TVS Motor Co. is poised to benefit from a revival in two-wheeler demand aided by the festive season but the risk-reward looks neutral given the valuation, analysts said after it posted its record quarterly earnings.

The Apache maker clocked its highest-ever quarterly net profit and revenue in July-September 2024 on the back of record two-wheeler sales.

Standalone net profit rose 23.5% over the year-ago period to Rs 663 crore in the quarter ended Sept. 30. Analysts polled by Bloomberg had estimated the bottom line at Rs 696 crore and the top line at Rs 9,419 crore.

The auto major expects domestic two-wheelers to grow 7-8% in third quarter with the company growing faster than the industry, Jefferies highlighted in a report on Oct. 23.

The brokerage believes that TVS should be a beneficiary of two-wheeler demand revival in domestic and export markets. "An improving franchise should drive continued margin expansion."

The brokerage remains positive on the two-wheeler demand outlook and said that the ongoing festive season started well with registrations up 12% year-on-year in the first 10 days.

Jefferies cuts fiscal 2025-27 earnings per share by 3-4% but still expects it to more than double over fiscal 2024-27. The brokerage retained 'buy' with its target price revised to Rs 3,270 per share from Rs 3,400 apiece earlier.

The automaker remains product-focused and is investing in technology and people while delivering steady margin expansion every quarter, Morgan Stanley noted. However, with fiscal 2026 price to earnings at 38 times the "risk-reward looks neutral," the brokerage said.

Morgan Stanley maintained 'equal weight' on the company and increased its target price slightly to Rs 2,265 per share from Rs 2,253 apiece. This implies a downside of 14% from the previous close.

Export demand appears to have bottomed out as well, Citi Research said after it reported its earnings on Wednesday. "We acknowledge TVS’ better-than-expected volume trends, but lower average selling price reflects the competitive pressures."

Valuations remain very high and provide little room for error, Citi said. While increasing its volume estimates by 2-3%, Citi increased earnings estimates marginally. It maintained its 'sell' rating and kept the target price unchanged at Rs 1,700 per share, implying a downside of 34.2%.