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Volume upcycle, market share gains to drive growth; Buy

* Q1 EBITDA grew by 8% qoq (3-yr CAGR: 19%) to Rs6bn, slightly above estimates. EBITDA margin has sustained around 10% for the last four quarters despite cost pressures and supply constraints, thanks to improving mix and cost savings. Revenue grew by 9% qoq (3-yr CAGR: 10%) to Rs60bn, broadly in line with our estimates.

* We retain our view of a turnaround in the domestic 2W industry, and TVSL should gain share due to its lower exposure to entry-level motorcycles. Volume performance should be supported by the reopening of offices/educational institutions, better finance availability, pick-up in rural sales and a favorable base effect.

* Led by a recovery in domestic 2W volumes (14% CAGR), we expect a 12% CAGR in total volumes over FY22-24E. TVSL is aggressively focusing on the EV space, with multiple launches lined up in 2Ws/3Ws in the next two years, R&D collaboration with BMW and investment in electric bike maker Ultraviolette.

* We increase FY23/24E EPS by 5%/3% to Rs29.1/Rs36.5 due to an increase in margin assumptions and Other income. Retain Buy with a TP of Rs1,000 (Rs950 earlier), based on 25x Sep’24E EPS (Jun’24E earlier) and the value of TVS credit services at Rs27/share.

EBITDA slightly above estimates: Revenue grew by 9% qoq to Rs60.1bn (est.: Rs59bn), broadly in line with estimates. Volumes grew by 6% and realization grew by 3%. EBITDA grew by 8% to Rs6bn, slightly above estimates. EBITDA margin declined by 10bps to 10%. Gross margin was higher by 5bp. The company has indicated that commodity inflation impact stood at ~200bps in Q1, and further hit is expected in Q2FY23, and a reduction is likely from Q3FY23. Other income increased to Rs222mn, mainly due to the stake sale in Intellicar Telematics. Accordingly, PAT grew by 17% to Rs3.2bn (est.: Rs2.95bn), above estimates owing to higher Other income. During the quarter, investments stood at Rs396mn toward TVS Motor (Singapore) and Rs1.14bn to acquire a 1.81% stake in Roppen Transportation Services (Rapido).

EV focus continues: TVSL has lined up a series of launches in 5-25KW categories in the next two years, targeted at segments such as premium scooters, high-performance sporty motorcycles, commuter space, delivery market and 3Ws. It expects to increase production from ~4,500 units in Jun’22 to 10,000 units, and then to 25,000 units in the coming months. It sells iQube electric scooters in 85 cities and is planning to make the model available across the country. It is also evaluating a stake sale in the E-mobility subsidiary.

Retain Buy with a TP of Rs1,000. Our positive stance is underpinned by: 1) expectations of a cyclical upturn in domestic 2Ws and positive growth in exports; 2) market share gains in domestic and overseas markets; and 3) margin expansion emanating from rising economies of scale, commodity deflation and cost-cutting measures. Key downside risks: lower-thanexpected demand in key geographies, increase in competitive intensity, failure of new products, further increase in commodity prices and adverse currency rates.

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