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Growth momentum continues

Q2FY23 EBITDA grew by 31% YoY (3-yr CAGR at 24%) to Rs7.4bn, slightly below our estimate due to increase in commodity costs and marketing spends. Management expects margin to improve in H2FY23, on price increases and commodity deflation. Revenue increased by 28% (3-yr CAGR at 18%) to Rs72bn, coming in 4% above our estimates, due to better-than-expected realizations. We increase our FY23-25E EPS by 1-4%, factoring-in higher volume assumptions. We maintain our positive stance, underpinned by: 1) expectations of a cyclical upturn in domestic 2Ws which generally lasts for three years at least; 2) increasing focus on EVs and premium models; 3) market-share gains in the domestic & overseas markets; and 4) margin expansion emanating from better scale and cost savings. We reaffirm BUY with a TP of Rs1,250 (Rs1,200 earlier), based on 25x Dec-24E EPS (Sep-24E earlier) and value of TVS Credit Services at Rs27/share. Key downside risks are lower-than-expected demand in key geographies, increased competitive intensity, failure of new products, and adverse movement in commodity prices/currency rates.

Q2 EBITDA slightly below estimates: Revenue grew by 28% YoY (3-yr CAGR at 18%) to Rs72bn, standing 4% above our estimate due to higher realizations. Volumes grew by 12% to 1mn units. Realization increased by 15% to Rs70,264/unit, above our estimates, on a better mix. EBITDA grew 31% (3-yr CAGR at 24%) to Rs7.4bn, at a 3% miss owing to increase in commodity costs & marketing spends. Overall, PAT rose 47% (3-yr CAGR at 27%) to Rs4.1 bn, below our estimate of Rs4.3bn owing to lower-than-expected operating profit. What we liked: 1) Strong festive season sales with market-share gains, 2) Strong product pipeline for EVs. What we did not like: 1) Lower than expected EBITDA margin. However, margin should improve ahead, on price increases (1.1% in Oct’22) and commodity deflation.

Earnings-Call KTAs: 1) The supply situation is turning better sequentially which will drive improvement in sales of premium models; 2) Inventory levels at dealers have reduced to below 4 weeks as of Oct-22; 3) EVs: Company has order book of >25,000 units and expects to reach production of 10,000/20,000 units in Nov-22/Mar-23. Management has indicated several launches across use-cases over the next three years; 4) In the overseas markets, major challenges include weakening macros, high inflation and adverse currency movement. Retail demand is expected to improve by Q4FY23; 5) Capex for FY23 would be Rs7.5bn, mostly relating to EVs. Investments would be largely in TVS credit and other opportunities in future mobility; and 6) TVS credit: Company has book size of Rs174bn and GNPA of 2.8%. It caters to 44% of TVS Motor’s needs. It is looking to raise funds for supporting growth.

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