Geojit Financial Services has upgraded its rating for TVS Motor Company (TVS) to a Buy, setting a target price of Rs 2,774, which represents a 12% upside. The recommendation reflects TVS’s robust financial performance in Q2FY25, driven by a favorable product mix, strong growth in electric vehicle (EV) sales, and strategic expansions. Below is an in-depth analysis of TVS’s performance, operational strengths, and growth prospects.

Record Quarterly Performance

Revenue and Profit Growth: TVS recorded a 13% YoY growth in revenue for Q2FY25, reaching Rs 9,228 crore, marking its highest quarterly revenue. This growth was driven by strong sales volume, a superior product mix, and enhanced realization. Additionally, the EBITDA margin improved to 11.7%, up 88 basis points (bps) YoY, bolstered by softening raw material prices and effective cost management.

Electric Vehicle (EV) Sales Surge: EV sales continue to gain momentum, with a 31% YoY increase, reaching 75,000 units. This growth underscores TVS’s commitment to the EV segment and positions the company for sustained long-term growth.

Operational and Market Expansion Strategies

Diversified Product Portfolio: TVS has expanded its portfolio with new EV and internal combustion engine (ICE) models. The company’s recent launches, such as the TVS Jupiter 110 and the Apache RTR 310, have been well-received, with the latter offering a build-to-order customization feature. Additionally, TVS has introduced new color options for the popular Ntorq 125, catering to diverse consumer preferences.

Expansion in International Markets: The company has strengthened its foothold in European and Latin American markets, especially through the Norton brand. With a continued focus on premium and electric vehicles, TVS is well-positioned to expand its global market share.

Outlook on Domestic and Export Demand

Strong Domestic Demand Expected: Rural demand in India is expected to remain robust, supported by favorable monsoons and improved crop yields. TVS’s extensive rural presence and diversified product offerings position it to capture this demand effectively.

Expanding Export Opportunities: TVS’s international sales rose by 16% YoY, driven by the demand for premium and electric vehicles. This growth is likely to continue as the company capitalizes on new opportunities in overseas markets, enhancing revenue from its export segment.

Financial Projections and Valuation

Revenue and Profit Forecast: Geojit projects TVS’s revenue to grow at 19.7% in FY25 and 17.3% in FY26, reaching Rs 44,628 crore by FY26. EBITDA is expected to grow at a 24% rate, with the EBITDA margin forecasted to increase to 12% by FY26. The adjusted PAT is anticipated to rise by 31% in FY25 and 29.7% in FY26, with an EPS estimate of Rs 74.5.

Valuation Multiples: TVS is trading at a P/E of 45.8x for FY25 and 35.3x for FY26. The standalone business has been valued at 36x FY26E EPS, while TVS Credit Services adds an estimated Rs 92 per share, resulting in a total target price of Rs 2,774.

Key Catalysts and Investment Rationale

Expansion in EV Portfolio: TVS is set to launch additional EV models in both the two-wheeler and three-wheeler segments within this fiscal year. These models, equipped with battery capacities ranging from 5 to 25 kW, will address growing consumer demand for green mobility solutions and enhance TVS’s position in the EV market.

Focus on Credit Services Growth: TVS’s credit book grew by 13% YoY to Rs 26,652 crore in Q2FY25, with TVS Credit reporting a 20% YoY increase in profit before tax (PBT). The credit services arm is expected to further strengthen TVS’s financial performance through increased revenue diversification.

Challenges and Risk Factors

Competitive Industry Landscape: The Indian two-wheeler industry remains highly competitive, with multiple players vying for market share in both ICE and EV segments. TVS’s ability to maintain its growth trajectory will depend on its continued innovation and effective positioning of new models.

Macroeconomic Risks: Factors such as changes in fuel prices, regulatory shifts in emissions standards, and economic conditions in key export markets could impact TVS’s performance. However, the company’s diversified product base and market expansions offer some protection against these risks.

Conclusion

Geojit’s Buy rating for TVS reflects a strong belief in the company’s strategic initiatives, robust product pipeline, and commitment to innovation. Key factors supporting this investment recommendation include:

Record Financial Performance: A strong Q2FY25, marked by record revenue and profit growth, underscores TVS’s operational resilience and market adaptability.
Strategic Focus on EVs: With a diverse and expanding EV lineup, TVS is well-prepared to capitalize on the growing EV market both domestically and internationally.
Expanding Market Footprint: Enhanced international presence and growing domestic demand provide TVS with robust revenue growth prospects.
Sustainable Financial Health: Strong cash flows, improved margins, and a growing credit book support TVS’s long-term financial stability.
The target price of Rs 2,774 provides a solid return potential, making TVS an attractive investment opportunity for those seeking exposure to India’s evolving two-wheeler and EV markets. The recommendation to Buy highlights Geojit’s confidence in TVS’s ability to deliver value to shareholders through sustained growth and market leadership.