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What is the story about?
Shares of TVS Motor Company Ltd. have been under pressure recently as they declined 13% over the last eight trade sessions.
In a recent filing on Monday, TVS Motor said that its board has approved the investment of ₹193 crore for a 5% stake in Jana Small Finance Bank.
Brokerages Elara and Axis Capital have raised concerns regarding the company's capital allocation policy after this announcement.
The brokerage is of the view that TVS Motor's investment in Jana SFB is negative in terms of capital allocation. It said investing in a micro-finance bank is a non-core investment and is not required in a year when capex investments are to be elevated.
Elara said FY27 is going to be a year of no free-cash-flow (FCF), including investments.
The brokerage said that elevated investment made by TVS in its subsidiaries has been a concern in the past. The company had invested ₹1,400 crore in its subsidiaries in FY24, ₹2,000 crore in FY25 and ₹2,400 crore in FY26.
Elara said the past investments were largely in the core business of mobility.
The brokerage said TVS Motor's investment in Jana SFB in an unrelated business raises concern on the company's overall capital allocation policy.
Investments limit the cash generation ability, it said.
The company's Operating Cash Flow / EBITDA remains healthy but Free Cash Flow / EBITDA is relatively weaker, according to Axis Capital
The lack of well-defined capital allocation policy can lead to valuation de-rating, Axis Cap warned in its note.
Shares of TVS Motor Company are trading little changed on Tuesday at ₹3,295.8. The stock is down 17% from its 52-week high of ₹3,970.
Also Read:BSE shares surge another 4% to a record high; Stock now up over 60% this year
In a recent filing on Monday, TVS Motor said that its board has approved the investment of ₹193 crore for a 5% stake in Jana Small Finance Bank.
Brokerages Elara and Axis Capital have raised concerns regarding the company's capital allocation policy after this announcement.
Elara
The brokerage is of the view that TVS Motor's investment in Jana SFB is negative in terms of capital allocation. It said investing in a micro-finance bank is a non-core investment and is not required in a year when capex investments are to be elevated.
Elara said FY27 is going to be a year of no free-cash-flow (FCF), including investments.
The brokerage said that elevated investment made by TVS in its subsidiaries has been a concern in the past. The company had invested ₹1,400 crore in its subsidiaries in FY24, ₹2,000 crore in FY25 and ₹2,400 crore in FY26.
Elara said the past investments were largely in the core business of mobility.
Axis Capital
The brokerage said TVS Motor's investment in Jana SFB in an unrelated business raises concern on the company's overall capital allocation policy.
Investments limit the cash generation ability, it said.
The company's Operating Cash Flow / EBITDA remains healthy but Free Cash Flow / EBITDA is relatively weaker, according to Axis Capital
The lack of well-defined capital allocation policy can lead to valuation de-rating, Axis Cap warned in its note.
Shares of TVS Motor Company are trading little changed on Tuesday at ₹3,295.8. The stock is down 17% from its 52-week high of ₹3,970.
Also Read:BSE shares surge another 4% to a record high; Stock now up over 60% this year
