Rising inflation, interest rates and fuel prices have moderated domestic auto industry growth in recent times.
However, given the lower dependence on financed purchases and improved rural incomes, two-wheelers have continued to grow at a brisk pace.
In the April-August 2011 period, two-wheeler sales outpaced the industry, growing 16 percent. The upcoming festival season, a favorable demographic profile and greater urbanisation would continue to drive two-wheeler sales.
In this scenario, an investment in the TVS MOTOR stock is recommended with a perspective of one or two years.
At Rs.60 range, the stock trades at a PE of about 11 times its estimated FY12 earnings.
Although the company faces stiff competition in the motor cycle segment, TVS has managed to improve its market share marginally, by 50 basis points to 7 percent in FY11.
In 2010-11, the company strengthened its line-up by launching the Apache RTR-180 ABS in the premium segment and the Max 4R and Jive in the executive segment.
Another favorable trend is the improving share of scooters in total two-wheeler industry sales.
From about 14 percent in 2007-08, scooters now account for 17.5 percent of all two-wheelers sold.
This is good for TVS because it is the second largest player and has a wide variety of products from 60 cc to 110 cc.
Another supporting factor is TVS's diversification into three wheelers, which bring higher margins, and also have good export potential. The company is already exporting three-wheelers to Sri Lanka and Bangladesh and added Egypt to the list recently.
A withdrawal of the DEPB incentive for exports may impact earnings in the near term. But the company plans to pass it on gradually to customers.
For the quarter ended June 2011, net sales grew 25 percent YoY to Rs.1, 707 crore and net profits 45 percent to Rs.59 crore. Operating margins remained stable at 6.8 percent.
So in medium term I found a bullish forecast on the stock.
(This recommendation is based on fundamental analysis. There is a risk of loss in trading.)
Regards Hari " लोका समस्ता सुखिनो भवन्तु "
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