TVS Motor earnings downgrade cycle to start in Q4: Morgan Stanley

Morgan Stanley is underweight on the stock, saying the premium valuation of 19 times estimated FY17 earnings is unjustified

The current quarter will mark the start of earnings downgrade cycle for TVS Motor , as the south-base two-wheeler major could find it tough to grow volumes in a fiercely competitive market, feels brokerage house Morgan Stanley. Morgan Stanley is underweight on the stock, saying the premium valuation of 19 times estimated FY17 earnings is unjustified. "

Bajaj has started a silent price war while the industry is slowing and continuing sharp market share losses are driving Bajaj Auto to adopt aggressive pricing. In this competitive scenario, TVS will find it tough to grow volumes profitably, in our view," says the Morgan Stanley note.

"In FY14, TVS Indonesia sold 19,200 units and posted a loss of Rs 140 crore, 53 percent of the stand-alone profit. Indonesia domestic sales (around 45 percent of TVS Indonesia sales) are down 38 percent YoY over the past three months and thus will make it," says Morgan Stanley, adding that it expects Indonesia losses to continue and breakeven targets to get pushed further. The brokerage says that exports is a bright spot for the company, but this segment is not immune to the volatility that TVS’s rival Bajaj has been facing.

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