Macquarie downgrades TVS Motor to 'neutral'

MUMBAI: Macquarie has downgraded shares of TVS Motor Company to 'neutral' from 'outperform' due to rising competitive intensity from Honda and lower-than expected initial response to its Victor motorcycle.

The brokerage said it is positive on the volume growth but checks with two-wheeler dealers across brands and regions indicate that competitive intensity led by Honda may increase over the next 12-18 months, and lower-than-expected initial response to Victor motorcycle.

"Our channel checks suggest a significant increase in competitive intensity from Honda 2Ws after the start of production at its fourth plant at Gujarat...Honda 2Ws has increased marketing and promotions of its flagship brand, Activa, and other key motorcycle models, CB Shine/CB Hornet. Moreover, Honda's has indicated that it would further expand its capacity by 0.6m units to 6.4m units by mid-FY18," said Macquarie in a note. These factors will keep TVS' marketing spending at higher levels and pose a risk to margin assumption, it added.

The brokerage maintained target price of Rs 330 on the stock. Macquarie said Eicher Motors, on which it has an 'outperform' rating with a target price of Rs 25,000, is the best play in the two-wheeler segment due to its dominant presence in the fast growing leisure bike segment.