Despite the disappointment of the first quarter, Sharekhan remained positive on TVS Motor Company and maintained 18-month price target of Rs 175.
TVS Motor Company (TVS) aided by incremental volumes from new launches (Jupiter and Star City+) reported a volume growth of 21.9% and a healthy revenue increase of 31% for Q1FY2015. However, contrary to expectations of a margin expansion on a sequential basis, the OPM contracted by 75BPS to 5.7%. Thus, the net profit growth of 39.4% to Rs72.3 crore was well below expectations.
The management emphasised on volume growth and market share expansion as the growth drivers for the company in the near term. The company has had two launches in the last six months which will be followed by another three launches in the rest of the current financial year. These new launches will be supported by advertisement and brand promotion campaigns which would limit the margin expansion in the near term.
Consequently, we have raised the volume estimates for FY2015 and FY2016 but moderated our margin assumptions on factoring in expectations of elevated sales and advertisement spending going forward. Accordingly, the earnings estimates for FY2015 and FY2016 have been cut by 7% and 3.5% respectively. Still we expect the company to deliver healthy earnings CAGR of 26% over FY2014-17. Hence, despite the disappointment of the first quarter, we remain positive on the stock and maintain our 18-month price target of Rs 175 (15x FY2017E earnings)", says Sharekhan research report.
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