Accumulate TVS Motor Company Ltd for the Target Rs 4,650 by Prabhudas Liladhar Ltd
Another Quarter of Outperformance
TVSL reported strong Q2 numbers as the management aims to outperform industry in both domestic and export markets and mitigate RM inflation through cost reduction, pricing, optimization initiatives, mix, and operating leverage. It sees the scooter segment growing faster than overall 2W industry and EV penetration to further inch up. It expects to gain share in international business which should grow well in FY27. TVSL continues to invest in the brand, products, capacity enhancements and new technologies. Prudent cost reduction measures and calibrated price hikes should help mitigate the RM cost inflation amid geopolitical uncertainties and supply chain disruptions. We estimate volume/realization CAGR of 10.4%/6.0% over FY26-29E translating to revenue/EBITDA/APAT CAGR of 17.0%/18.9%/21.4%. Retain ‘ACCUMULATE’ rating with TP of INR4,650 (previous INR4,500), valuing the stock at 35x P/E based on Sep’28E standalone EPS, and INR101 for TVS Credit Services Ltd.
Standalone op. revenue of INR171.0bn (+43.7% YoY, +23.1% QoQ)
beat BBGe/PLe by +5.5%/+3.0%. Realization at INR 89.1k (+12.8% YoY, +4.6% QoQ). Gross margin stood at 27.0% (-190 bps YoY, -20 bps QoQ) missed BBGe/PLe by -50bps/-70bps. EBITDA margin of 13.0% (+30bps YoY, +20bps QoQ) beat BBGe & PLe both by +20bps. EBITDA was INR22.2bn (+47.3% YoY, +24.7% QoQ) beat BBGe/PLe by +7.1%/+4.4%. Adj PAT of INR13.8bn (+52.4% YoY, +17.3% QoQ) beat BBGe/PLe by +7.0%/+2.6%. H1FY27 (YoY): standal. op. revenue INR310.0bn (+41.0% YoY); Gross Margin 27.1% (-180bps YoY); EBITDA margin 12.9% (+30bps); Adj PAT INR25.5bn (+51.9% YoY)
Commodity inflation increased ~1.9% QoQ in Q2:
Corresponding selling prices increase was ~1.6% and another small price hike was taken at the start of Oct’26. Future price hike decisions will be taken post Diwali, however, the management indicated that it will be smaller in magnitude as it sees RM costs stabilizing or even softening in upcoming quarters and wants to balance demand. Operating leverage continued material cost reduction and improving mix should help improve margins going ahead.
Demerger of consumer finance business:
TVS’ Board approved the demerger into a separate holding company where TVS Motor shareholders will receive one share of the demerged company for every TVS Motor share they hold. However, TVS Motor will not own any share in the demerged entity. The demerger will unlock shareholder value through a focused consumer finance platform, provide strategic autonomy, sharpen capital allocation and increase flexibility for sector opportunities. The consolidation of NBFCs under the parent group is underway and only after the consolidation is completed will the demerger process start (subsequently around July’27). The demerged company’s listing will take another 8-10 months’ time due to regulatory and shareholder approvals.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
