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Axis Securities Report
TVS Motors Ltd. Q3 FY24 numbers were largely in line with our revenue and Ebitda estimates with a beat on profit after tax. Revenue (inline) grew by ~26% YoY (1% QoQ), mainly led by higher sales volumes (up ~25%/2% YoY/QoQ). Ebitda (inline) grew by ~40% YoY (3% QoQ), mainly led by gross margin expansion on account of commodity softening and price hikes taken during the year partly offset by higher marketing expenses towards new product launches.
Gross margin's improved by 183 basis points YoY (32 bps QoQ) basis to ~26.3%. Profit after tax grew by robust ~68% YoY (11% QoQ) and 9.7% beat largely on account of higher other income (Rs 73 crore).
Outlook:
We believe TVS Motor to be ahead in introducing a range of electric vehicle products ahead of other two-wheeler original equipment manufacturers. Being well-placed among listed players, we expect the company's revenue/Ebitda/profit after tax to grow by ~17%/21%/24% CAGR over FY24E-26E.
We like TVS Motor because of its engineering and research and development capabilities, strong domestic retail network and increasing sales volumes from premium offerings in developed countries (Norton business to be developed in a few years).
Valuation and recommendation:
Based on the above strong fundamental outlook, we expect the company to deliver a strong return on equity ranging between 27%-30% over the next few years.
With the competitive intensity increasing over the next few quarters in the EV and mid-weight motorcycle category we value it at a sustainable premium price/earning multiple of 32 times on FY26 core EPS (earlier 34 times on Dec-25 EPS) and other investments at one time price/book value and TVS Credit Services at two times price/book value on FY23, thereby arriving at a target price of Rs 2,350 (unchanged).
The target price implies an upside of 17% from the current market price.
Key risks to our estimates and target price
Slower than expected rural demand, due to mismatch between rise in per capita income versus price hikes taken on account of regulatory norms like OBD, BS VI phase II to impact two-wheeler demand specifically, the entry-level segment.
Further delay in volume pickup of Export markets (mainly African, Latin America and Asian markets) may hinder volume recovery prospectus and negatively impact bottom line margins.
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