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Valuation and View - Market share gains to persist

TVSL 3QFY24 results were mixed given revenue/Adj.PAT came in line while EBITDA missed our estimates by ~5% led by higher ad-spends due to festive. Gross margin expanded ~180bp YoY (+30bp QoQ) at 26.3% led by benign RM. Key operating metrics such as EBITDA/vehicle increased further to Rs8.4k/unit (+12.1% YoY/ +0.3% QoQ). Going ahead, margin expansion to continue given soft RM and favorable mix. With iQube production run-rate ramped up to ~25k units/month and more launches planned (in 5- 25kwh capacity, both in 2W and 3W segments), TVSL continues to focus on EV ramp-up. We continue to believe TVSL is better placed among 2W OEMs both in ICE and EVs led by better product acceptability which should drive further market share gains.

In our view, EBITDA margins expansion to continue given RM softening and price hikes. TVSL currently trades at 37.1x/29.2x of FY25/FY26 EPS (v/s HMCL/ BJAUT of 17-22x). We believe, it should continue to trade at a premium as we expect EPS CAGR of ~24% over FY24-26E. We believe sustained market share gains in domestic EV 2Ws led by aggressive product pipeline, scope of external investments in to EV vertical are re-rating triggers. We re-iterate TVS as our preferred pick among 2Ws with ADD with revised TP of Rs2,193 as we continue to value co at 30x Mar-26 EPS plus Rs102 value to TVS credit. We upgrade FY25/FY26 EPS by 0.4-2.5% to factor in for higher other income.

Result Highlights – EBITDA miss led by higher festive ad spends

Revenues grew 26% YoY and 1.2% QoQ at Rs82.5b (est Rs84.3b) as ASP grew 0.6% YoY (-1.2% QoQ) at Rs74.9k/unit (est. Es.76.6k/unit) whereas volumes grew 25.2% YoY (+2.5% QoQ) at 1.10m units.

Gross margins came in-line at 26.3% (+180bp YoY/ +30bp QoQ, est 26.2%). This was led by price hikes, favorable product mix and RM softening.

EBITDA grew 40.3% YoY (+2.7% QoQ) at Rs9.2b (est. Rs9.7b, cons in-line) with margins at 11.2% (+114bp YoY/ +16bp QoQ, est. -40bp , cons in-line).

Led by healthy operating performance and higher than expected other income at Rs734m (est Rs300m v/s Rs65m in 3QFY23), Adj.PAT came in at Rs5.9b (+68.2% YoY/ +10.6% QoQ).

9MFY24 performance – Revenue/EBITDA and Adj.PAT grew by 19.4%/36.3% and 47.8%, respectively.

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