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CLSA initiates coverage for TVS with SELL rating

Last Updated 30 March 2015, 21:04 IST

The slowdown in the Indian motorcycle does not augur well for one of India’s largest two-wheeler manufacturers, TVS Motor Company.

Asia’s leading and longest-running independent brokerage and investment group CLSA has initiated coverage on Chennai-based TVS Motor with a ‘SELL’ rating and a target price of Rs 190 per share.

According to CLSA, after a strong FY15, TVS’ volume growth should decelerate over next 2-3 years led by slowing Indian motorcycle demand and rising scooter capacity at Honda.

TVS’ stock has risen sharply in the last one-and-half years led by a commendable volume turnaround since early 2014 (calendar year), but also extremely high expectations for topline growth and margin improvement over FY16-17, which is believed to not come through. The stock is trading at an expensive 21 times FY17 price to earnings and offers little scope for disappointments. “We initiate with SELL and a target price of Rs 190 at 15 times FY17 price to earnings, including losses for Indonesian subsidiary,” CLSA added.

Honda Motorcycle and Scooter India (HMSI) had recently announced that it will be investing an additional Rs 585 crore at its factory at Narsapur, Karnataka. to expand capacity to 24 lakh units per annum. The company had also said that with the additional capacity of upcoming 4th plant which is scheduled to become operational in the first half of 2016, the expansion will increase HMSI’s overall annual production capacity to 64 lakh units.
The brokerage firm believes that the success of its new launch in the 100 cc segment is likely to be limited.

“We believe TVS’ upcoming executive 100 cc bike ‘Victor’ will see only limited success given Hero’s strong franchise and inability of even Honda/Bajaj to penetrate this segment. TVS’ scooter market share should also come under pressure once Honda increases its capacity by CY16. Export outlook is healthy longer-term, but cyclical pressures in key markets will impact near-term volumes,” CLSA said.

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(Published 30 March 2015, 21:02 IST)

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