Neutral TVS MOTOR For Target Rs.1060 - Motilal Oswal Financial Services Ltd
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* TVS Motor Company (TVSL)’s operating performance was in line in 4QFY23. TVSL posted the highest ever EBITDA margin at 10.3% (+20bp QoQ; in line). This is likely to remain stable in the coming quarter as moderate increase in RM prices in 1QFY24 should be offset by ~2% price hike (including 1% against OBD-2 related cost).
* We retain our FY24E/FY25E EPS. Reiterate Neutral with a TP of ~INR1,060 (based on ~20x Mar’25E EPS + INR69/sh for the NBFC).
Mix and price hikes result in record EBITDA/vehicle at INR7.8k
* TVSL’s revenue/EBITDA/adj. PAT grew 19%/22%/33% YoY in 4QFY23 to INR66.0b/INR6.8b/INR3.6b. FY23 revenue/EBITDA/ adj. PAT rose 27%/38%/61% YoY.
* Net realizations improved 18% YoY (2% QoQ) to INR76.1k (v/s est. INR76.8k) due to price hikes and favorable FX. Volumes were flat YoY/QoQ to 868.4k units. Net revenue grew 19% YoY to INR66.05b (in line with est. of INR66.6b) during the quarter.
* Gross margin improved 80bp YoY/10bp QoQ and stood at 24.6% (v/s est. 24.8%) due to slight softening of RM costs.
* Despite slightly higher other expenses (+60bp YoY), EBITDA margin expanded 20bp YoY/QoQ each to 10.3% (v/s est. 10.4%). EBITDA grew 22% YoY to INR6.8b (v/s est. INR6.95b) in 4QFY23.
* Adjusting for the impact of INR620m towards fair valuation gain on equity shares held by the company, adj. PAT came in line at INR3.6b (+33% YoY) during the quarter.
* CFO for FY23 stood at INR19.9b (v/s INR15b in FY22). Capex for FY23 was INR10b (v/s INR7.3b in FY22). FCFF was at INR10b (v/s INR7.7b in FY22).
* TVSL invested INR2b in TVS Credit Services and INR3.55b in TVS Motor Singapore in 4QFY23. The net contribution of subs/associates was a net loss of INR742m/INR1.6b in 4QFY23/FY23 (v/s profit of INR30m in 4QFY22 and loss of INR1.4b in FY22) due to losses in Norton Motorcycle and other recent investments.
Key takeaways from the management interaction
* Domestic demand outlook: While there is urban recovery, rural continues to remain slow. Healthy demand revival is contingent on good monsoon. Management expects TVSL to outperform both domestic and exports markets.
* Exports: Ensured retail sales were better than wholesales resulting in inventory correction. Most of the export geographies will see growth in the second half of the year. Further, the company has plans to expand in LatAm and the Middle East markets.
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