Reviews

In this edition, we have reviewed TVS Motor Company Ltd. and Asian Paints Ltd. We suggest our reader-investors to HOLD TVS Motor Company Ltd. and Asian Paints Ltd. 

We had recommended TVS Motor Company in Volume 39, Issue No. 8 dated March 11, 2024 — March 24, 2024, under the ‘Choice Scrip’ segment. The recommended price for the stock was ₹2,279.50. The stock had been chosen among others since the company focuses on leveraging scale benefits, premium product migration and sustained cost reduction. TVS Motor Company is one of the largest two-wheeler manufacturers in India. It is also the largest exporter of its kind with its automotive products exported to several countries. 

The company’s strength lies in its extensive research and development, resulting in products that are industry-leading in terms of innovation. In Q1FY25, on a consolidated basis, the company’s revenue increased by 14.92 per cent YoY to ₹10,406.86 crore compared to ₹9,055.51 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 3.63 per cent. The PBIDT excluding other income increased by 20.61 per cent to ₹1,464.91 crore YoY as compared to ₹1,214.59 crore from the previous year’s same quarter, while sequentially decreasing by 1.35 per cent. Its net profit stood at ₹502.85 crore compared to ₹452.16 crore, a YoY increase of 11.21 per cent, while sequentially increasing by 19.47 per cent from ₹420.91 crore. 

At TTM, the shares of TVS Motor Company are trading at a PE of 76.4 times, which is higher than its three-year median PE of 47.4 times, whereas the industry PE stands at 51.7 times. If we look at its PBV, it is currently at 19.3 times, which is higher than the industry PBV of 7.22 times. The company has a three-year average return on equity (ROE) of 24.1 per cent and a return on capital employed (ROCE) of 13 per cent. TVS Credit has seen a 20 per cent YoY customer base growth, with a book size of `26,351 crore. The company plans to launch six new products over the next three years, including Norton and electric vehicle models. 

The company is also focusing on rural recovery through government budget initiatives and improved road infrastructure. TVS Motor Company anticipates robust growth in Q2 due to normal monsoons and improved road infrastructure. The company’s FY25 capital expenditure plan is estimated at ₹1,000 – ₹1,100 crore, with significant investments in Norton and electric mobility. The company’s future strategy focuses on leveraging scale benefits, premium product migration and sustained cost reduction to enhance profitability, while also emphasising the importance of brand building and investments in technology. Hence, we recommend HOLD. 

We had recommended Asian Paints in Volume 39, Issue No. 9 dated March 25, 2024 — April 7, 2024, under the ‘Analysis’ segment. The recommended price for the stock was ₹2,823.15. We had recommended the stock on account of its focus on improving the product mix and bridging the volume-value gap. Asian Paints, established in 1942, is India’s leading paint company and has grown significantly since its inception. The company, driven by a strong consumer focus and innovative spirit, has been a market leader in paints since 1967. It operates through two 50:50 joint ventures, PPG Asian Paints (P) Ltd. and Asian Paints PPG (P) Ltd., catering to the Indian automotive coatings market and the protective, industrial powder, industrial containers and light industrial coatings markets in India. 

In Q1FY25, on a consolidated basis, the company’s revenue decreased by 2.3 per cent YoY to ₹8,943.24 crore compared to ₹9,153.79 crore from the previous year’s same quarter. On a sequential basis, the revenue increased by 2.78 per cent. The PBIDT excluding other income decreased by 20.15 per cent to ₹1,693.77 crore YoY as compared to ₹2,121.29 crore from the previous year’s same quarter, while sequentially increasing by 0.14 per cent. The net profit stood at ₹1,150.07 crore compared to ₹1,544.17 crore, a YoY decrease of 25.52 per cent, while sequentially decreasing by 7.99 per cent from ₹1,249.98 crore. 

At TTM, the shares of Asian Paints are trading at a PE of 57 times, which is lower than its three-year median PE of 71.4 times, whereas the industry PE stands at 54.1 times. If we look at its PBV, it is currently at 15.4 times, which is higher than the industry PBV of 8.5 times. The company has a three-year average return on equity (ROE) of 27.8 per cent and a return on capital employed (ROCE) of 33.6 per cent. 

The company is expecting further price increases to offset inflation and is expecting growth in rural demand and during the forthcoming festive season. The industrial business is showing positive trends, with a focus on improving the product mix and bridging the volume-value gap. It has achieved 7 per cent volume growth in Q1FY25, with a CAGR of 15.3 per cent over a five-year perspective. The company is anticipating an uptick in demand in the upcoming quarters, with the rural markets showing signs of growth. It is expanding its distribution footprint with 1.65 lakh retail touch-points and is focusing on expanding the home decor initiatives. Hence, we recommend HOLD. 

(Closing price as of October 23, 2024)