Accumulate TVS Motor Company Ltd For Target Rs. 3,950 by Prabhudas Liladhar Capital Ltd
Strong Quarter with Margins Improving
TVSL reported a mixed set of Q4 numbers with in-line revenue, beat on margins (that expanded), and miss on PAT. The management aims to outperform industry in the scooter segment, in e2Ws, and in exports which it expects to drive FY27 growth. TVSL continues to invest in technology, R&D, innovation and brand building and is taking riskcalibrated growth measures across categories amid geopolitical uncertainties. We estimate volume/realization CAGR of 10.3%/4.6% over FY26-28E translating to revenue/EBITDA/adj. EPS CAGR of 15.4%/16.0%/20.4%. Retain ‘ACCUMULATE’ rating with TP of INR3,950 (previously INR4,150), valuing the stock at 35x P/E based on FY28E EPS, and INR87 for TVS Credit Services Ltd
Standalone op revenue at INR128.1bn (+34.1% YoY):
It grew by ~36% YoY normalizing Q4FY25 revenue for the PLI benefits. Realization was INR82.1k (+4.5% YoY/+1.6% QoQ). Gross margin stood at 28.6% (-160 bps YoY/-20 bps QoQ). EBITDA margin was 13.1% (+60bps YoY adjusted for PLI benefits, flat QoQ) beating estimates by ~25bps. EBITDA was INR16.8bn (+26.2% YoY, +2.9% QoQ) while adj. PAT of INR9.98bn (+33.0% YoY, +3.0% QoQ) missed BBG/PLe by -1.3%/-4.3% due to lower-than-expected other income (from loss on fair valuation of an investment). For FY26, op revenue was INR472.7bn (+30.4% YoY), EBITDA INR60.8bn (+36.6% YoY), EBITDA margin 12.9% (+60bps YoY), and adj. PAT INR36.48bn (+40.0% YoY)
Aims to improve topline and EBITDA margins:
The management expects commodity inflation of 3-5% of revenue (mainly steel, aluminium and crude oil derivatives) in Q1FY27, of which ~35% has been offset via price hikes. Leveraging scale, mix, premiumization, cost reduction and further price hikes on select models TVSL will strive to improve margins. The partnership with Hyundai to co-develop e3Ws is also expected to contribute to company's EBITDA.
The management is cautiously optimistic for H1FY27:
Near term risks include timely availability of raw material, related inflation, supply chain disruptions arising from geopolitical issues, and weakening of rural sentiments due to below-normal rainfall this year (impacting H2FY27). Manpower shortage mainly at tier 2 suppliers caused production disruptions for TVS in Apr’26 which it expects to overcome within 2 weeks and maintain growth ahead of the industry in Q1FY27. International business saw ~15% increase in transit lead time and TVSL is working with distributors in addressing the same
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