Opportunity:

TVS Motors with expanding volumes and growth has a long return potential.  The sales recorded a growth of 23% as compared from quarter ended June 2013 to quarter ended 2014.

It can benefit significantly from:

  • Shift to scooters – with a segment growth of 24% CAGR over FY14-FY18E, and
  • Bridging product portfolio gaps to drive market share/ margin growth.

 

The recent news says that the company is aiming to achieve 10% growth in sales during current fiscal year (FY14). Introduction of new vehicle such as TVS Jupiter in scooter segment aims at rise in sale of 50,000 scooters as against 35000 being sold currently. TVS motors being the fourth biggest motorcycle company by sales has tied up with BMW Motorrad, the motorcycle division of Germany’s BMW AG. This long awaited technology sharing has drastically increased the share value as high as 15% in 2013. The company’s volume growth leading to operating margin expansion makes the investor to sustain in the trading activity with a positive approach. Scooters have grown to 24%in FY14 and expected to rise to 36% by FY18E from 16% of domestic two wheelers (2w) industry volumes. 24% CAGR is on the back of rising road traffic congestion, flexible transport needs, unisex appeal, utility value and increased demand for mobility from women. Among the listed 2w names, TVS scooters has the highest segment.

Peer comparison:

Intense competition, subdued domestic demand, lower overseas sales, failure of launches, commodity prices hike, sustained losses in Indonesia subsidiary are some key risk which may curtail the growth. However, scooters exports continue to register higher growth shows the least exposure to competitive domestic motorcycles segment.

In comparison to Bajaj Auto, TVS has got a potential opportunity in scooter sector as currently Bajaj Auto has no presence in scooters and overcrowding in high volume motorcycles execution. The re-launch of Victor in 1HCY15 could potentially be an important catalyst for TVS to grow in 2w sector. In case of Hero MotoCorp, overdependence on executive motor cycles, creates a product portfolio risks. In addition, models launched post its JV split with Honda: Ignitor, Impulse and Maestro scooter failed to meet the demand expectation.

Overall, the company has left behind these two major companies due low base effect.

Macroeconomic conditions:

As said by Moody rating agency, Indian economy likely to grow between 5-6 percent in 2015, helped by domestic demand and diversified export markets. It also said that employment and consumption likely

to increase in India. This shows a positive impact on overall market structure. Increase in cash flows to corporates accelerates manufacturing activity.

The company’s performance despite of challenging macroeconomic environment and competitive landscape has shown increase in sales. In case of industry structure and development, macroeconomic conditions remained weak. Depressed economic sentiments and poor income growth and higher prices continue to affect the industry. Considering the Moody’s statement, the increase in income levels, with fall in inflation shows positive impact on TVS motors. With the launch of Jupiter and re-launch of Victor can make up the target price bullish.

The success of new-launched models, improvised technology, increase in volumes and higher negotiating power with its suppliers can make TVS motors to be on bullish phase.

 

TVS Motors Company is a member of TVS group. It is the third largest two wheeler manufacturer in India and one among the top ten in world. TVS Motors has gained a lot of investors pride and confidence with its new trend of two-wheelers and motorcycles. It manufactures two wheelers to racing motorcycles. The company’s products include domestic range of two wheelers, three wheelers and international range of two wheelers.The TVS motor co. ltd has dis-invested 90.46% of interest in TVS energy limited (TVS energy), a subsidiary of green infra limited in august 2013.

 

Strategy :

Buy 1000 Shares of TVSMOTOR @ 252.0

Sell 2 Lots of  TVSMOTOR Call Option 260 Strike Price @ 5.25 . This will have cash inflow of 2*5.25*1000 = Rs. 10,500

Buy 1 Lot of TVSMOTOR Put Option @ 240 Strike Price @ 2.70. This will have Cash Outflow of 2.70*1000 = Rs. -2,700

 

 

 

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