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Steady show; credible EV strategy at play

In 4QFY24, TVS Motor (TVSL) reported EBITDA margin of 11.3% (+100bps YoY, +10bps QoQ), in-line with JMFe led by cost reduction efforts. Domestic 2W demand, so far, is led by urban market and there are early signs of revival in the rural segment. Demand in the international markets has also started to recover. With respect to EVs, TVSL plans to ramp-up EV business by introducing new products and expanding dealer network going ahead. Overall, we expect TVSL’s outperformance to continue on the volume front (led by premiumization and EV product launches), while higher operating leverage and astute cost management would help on the margin front. We estimate revenue / EPS CAGR of 14%/24% over FY24-26E. We maintain BUY with a Mar’25 TP of INR 2,100 (30x Mar’26E EPS). Higher competitive intensity in EVs remains a key risk.

* 4QFY24 – In-line margin performance: In 4QFY24, TVS Motor reported net sales of INR 81.7bn (+24% YoY, -1% QoQ), c.3% above JMFe. Volumes increased 22% YoY (-3.5% QoQ). Blended realisation was up 1% YoY (+3% QoQ). EBITDA margin stood at 11.3% (+100bps YoY, +10bps QoQ), in-line with JMFe. Reported EBITDA stood at INR 9.26bn (+36%YoY, +3%QoQ). Adj. PAT for the quarter was INR 4.8bn (+18% YoY, -18% QoQ), 12% below JMFe, mainly led by lower than expected other income (due to change in fair value of an investment).

* Demand environment: Domestic 2W volumes are gradually improving. The management indicated that there are early signs of revival in rural demand (as witnessed by strong festive growth) and expects recovery to be prominent (supported by normal monsoon) during FY25. Improvement in retail financing (c.56% during 4Q) is also supporting the volume recovery. Overall, the management expects TVSL to outperform the industry in both domestic and export segments led by its extensive product portfolio. Demand in the international market is also expected to recovery steadily led by healthy momentum in markets like ASEAN, LATAM and gradual recovery in Africa.

* Margin outlook: 100bps YoY EBITDA margin expansion during 4Q was led by cost reduction initiatives (incl. RM cost) partially offset by higher marketing spends. TVSL took a price hike of 0.3% in Apr’24 to mitigate the impact of recent increase in commodity prices. Management indicated that it will continue to judiciously invest towards brand building and marketing efforts. Overall, TVSL expects a) richer product mix, b) costreduction initiatives, c) higher operating leverage (especially for EVs) to be additional levers for margin expansion.

* Update on EV initiatives: The company indicated that ramp-up in iQube sales is led by positive customer response. Currently, TVS iQube is present across 712 touchpoints and the company plans to further expand its presence going ahead. Multiple new EV launches are planned (starting 1HFY25) as TVSL plans to build a complete EV product portfolio over next 6-8 qtrs. Launch of E3W is also expected during FY25 (in both domestic and international market). During Apr’24 TVSL received PLI certification for its existing product portfolio which is expected to support EV profitability going ahead.

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SEBI Registration Number is INM000010361