On Thursday, Ambit Capital began coverage on TVS Motor Co Ltd (TVSL:IN), issuing a sell rating with a price target of INR 2,072.00. The firm's analysis suggests that the company's impressive performance over the past five years may not sustain due to challenges in the domestic two-wheeler (2W) market and the potential impact of electric vehicle (EV) disruption.
TVS Motor has seen market share and margin expansion, attributed to filling gaps in its product offering and less aggressive competition. However, Ambit Capital forecasts that the company's outperformance in the domestic 2W market may diminish. This is partly because of the limited areas where TVS Motor can expand its portfolio and the fact that competitors are starting to strengthen their market strategies.
The company's export business is expected to continue growing above the industry average as it enters new markets. Despite this, the rise of electric vehicles poses a threat, particularly due to TVS Motor's focus on scooters and motorcycles above 125cc, which may be more susceptible to shifts in consumer preference towards EVs.
Ambit Capital also notes that further expansion of TVS Motor's EBITDA margin beyond 12.0-12.5% could be challenging. The company's diverse but fragmented portfolio may limit economies of scale, and the absence of segment leadership could reduce its pricing power.
The sell rating comes with a fair value estimate based on a discounted cash flow analysis and the value of investments. The price target reflects a 27.5 times multiple of the company's projected core earnings for the fiscal year 2026, indicating that the current valuation may be overly optimistic given the anticipated risks.
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