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Valuation and View- Market share gains to persist

TVSL 4QFY23 were in-line operationally with EBITDA margins of 10.3% (+20bp QoQ and YoY) is resilient given overall volumes were flat QoQ coupled with weak exports and increased EV contribution. Realizations increased for 4 the consecutive quarter at
Rs75.2k/unit, led by favorable mix and price hikes. Going ahead, QoQ margins expansion will be contingent upon RM softening and operating leverage as EV share would continue to increase. Price hikes though continued with ~ 0.5% in 4QFY23, ~1% in 1QFY24 (for OBD2) and 0.8-1% in May’23 as well. Going forward, management re-iterated EV launches (in 5-25kwh capacity, both in 2W and 3W segments). We continue to believe TVSL is better placed among 2W OEMs both in ICE and EVs led by better product acceptability which should drive further market share gains. TVSL hinted EV volumes will be continued led by network expansion (currently available in 135 cities with over 235 points vs 110 cities over 200 touch points in 3QFY23).

In our view, EBITDA margins is considered resilient given weak volume trajectory further aided by upfronting of cost on EVs/digital/connected technologies. TVSL currently trades at 23.5x of FY25 EPS (v/s HMCL/ BJAUT of 12/16.5x). We believe, it should continue to trade at a premium as we expect EPS CAGR of ~26% over FY23-25E. We believe sustained market share gains in domestic EV 2Ws led by aggressive product pipeline, scope of external investments in to EV vertical and NBFC TVS credit are additional re-rating triggers. We re-iterate TVS as our preferred pick among 2Ws with ADD and revised TP of Rs1,311 (v/s Rs1,272) and continue to value co at 25x Mar-25 EPS plus Rs68 value to TVS credit. We tweak FY24/25 EPS by -1.4%/+2.6% to reflect product mix changes.

Result Highlights – Margins expansion to be gradual

* Revenues grew 19.4% YoY (+1% QoQ) at Rs66.04b (in-line) as ASP grew 16.4% YoY (+1% QoQ) at Rs75.2k/unit (in-line) whereas volumes grew 2.6% YoY (flat QoQ) at 878.8k units. TVSL has taken further price hikes of 0.5% in 4QFY23 and ~1% in 1QFY24 (for OBD2) and further marginal price increase of 0.8-1% in May’23 as well.
* Gross margins came in-line at 24.6% (+80bp YoY/ +10bp QoQ).
* EBITDA grew 22% YoY (+3% QoQ) at Rs6.8b (in-line, cons Rs6.5b) with margins at 10.3% (+20bp YoY/QoQ, in-line, cons 10%). This resulted in EBITDA/unit grew by 3.2% QoQ at Rs7.7k/unit (+18.9% YoY). Led by steady operating performance and
higher other income at Rs705m (est Rs117m v/s Rs65m in 3QFY23), Adj.PAT came in better at Rs4.1b (est Rs3.7b, cons Rs3.5b).
* FY23 performance were healthy as revenue/EBITDA/Adj.PAT grew 16.4%/22.4%/26.4%.

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