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TVS Motor’s (TVSL) Q4FY23 EBITDA margin at 10.3% (up 22bps QoQ) was in line with consensus estimates. EBITDA per vehicle rose 4% QoQ to Rs7.8k led by: i) ~2% higher ASP due to 1% blended price hike taken, and ii) better mix due to higher share of premium models and iQube. Export retails have been better than export wholesales of 75k unit a month, indicating that the inventory correction phase is largely over. We therefore expect export volumes to pick up gradually ahead in coming months. Post the success of iQube (>30k pending bookings) at average sales of 14k vehicles per month last quarter, TVSL is targeting to ramp-up its production to 25k units a month soon. Company also plans to launch a diversified EV portfolio, introducing new EVs in the 5-25kW segment in the next 9-20 months, and also add to exports. We have factored-in an EBITDA CAGR of ~28% through FY23-FY25E. Maintain BUY with a DCF-based target price of Rs1,363 (earlier: Rs1,251), implying 23x FY25E core EPS. Increase in the target price has been driven by a combination of increase in earnings estimates and earnings roll-over by a quarter in DCF.

Key takeaways from earnings call:

* Demand for 125cc models currently is quite strong and TVS is addressing that market through its brands Raider, Jupiter 125 and Ntorq. Management is looking forward to a steady monsoon amidst no further hike in TCO of the entry level models for rural demand to make a comeback. With Apache in the premium bike category and other 125cc models including scooters, TVS is looking forward to >10% growth in its domestic 2W sales in FY24. In terms of exports with retails being larger than wholesales, inventory unwinding is largely over. With retails improving gradually, TVS is looking ahead to the absolute level of monthly wholesales inching up from current ~75k units. iQube orderbook is currently at 30k unit levels and is retailed across 235 touchpoints in 135 cities. TVS is planning to launch a new and cheaper e-2W in the coming months other than launching a portfolio of e-2Ws targeting export markets too in next 12 months.

* In terms of profitability, TVS’s entire focus is on scaling up its e-2W portfolio and subsequently benefit from the sale advantage and superior bargaining power with the vendors. With e-2Ws already being gross margin positive in FY23, we believe, the portfolio is closer to being EBITDA-neutral and thus would start adding to EBITDA at par with the current portfolio from H2FY24 itself. This should push the EBITDAM from the current ~10% towards ~11-12%, we believe. Exports recovery would also add to the margin mix other than premium bike portfolio scaling up briskly aided by improving chip supplies. TVS Credit Services registered a PBT of ~Rs5bn in FY23 with a book-size of ~Rs210bn and PT Indonesia operated at a PBT of US$5mn in FY23 vs US$3mn YoY.

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