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Margins resilient; PLI benefits to accrue in 4Q

Valuation and View – Yet to be accrued PLI benefits to support margins

TVSL 3QFY25 results was in-line as flat ASP QoQ and YoY at ~Rs75k/unit (est Rs75.5k/unit) as expected as price hikes remained negligible with product mix too remained stable. Muted ASP was also led by launch of iQube 09 variant at lowered price point. However, margins continue to be resilient at 11.0% (+70bp YoY/ +20bp QoQ). Gross margin expanded ~210bp YoY (flat QoQ) at 28.4%. Key operating metrics such as EBITDA/vehicle remain elevated at ~Rs8.9k/unit (+6.3% YoY/ +1.5% QoQ). The management indicated rural/semi-urban markets are performing better vs urban in 9MFY25 and even in 3Q. 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. However, we would remain watchful of the TVSL’s market share in the 125cc segment and market share thereof.

In our view, EBITDA margins expansion to continue given largely stable RM and PLI benefits which is expected to accrue from 4QFY25. TVSL currently trades at 34.5x/28.8x of FY26/FY27 EPS (v/s HMCL/ BJAUT of 15-19x on FY27 EPS). We believe, it should continue to trade at premium as we expect EPS CAGR of ~22.7% over FY24-27E. Sustained market share gains led by aggressive product pipeline, success in to EV 3Ws, 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 Rs2,795 as we value co at 33x Mar-27 EPS plus Rs93 value to TVS credit. We increase FY26/27 EPS by 3% each to reflect upon PLI benefits from 4QFY25E.

Result Highlights – In-line; EBITDA/vehicle continues to be healthy

* Revenues grew 10.3% YoY (-1.4% QoQ) at ~Rs90.8b (est Rs91.5b, cons Rs91.1b) led by 10.1% YoY (-1.3% QoQ) growth in volumes at 1.21m units while ASP were flat YoY and QoQ at Rs75.1k/unit (est Rs75.5k/unit). Co indicated no major price hikes taken during 3QFY25. EV revenue for 3QFY25 at Rs8b (vs ~Rs16b in 1H).

* Gross margins came in at 28.4% (+200bp YoY/flat QoQ, est 28.7%) and sustained elevated levels led by benign RM. EBITDA grew 17% YoY (flat QoQ) at Rs10.8b (est ~Rs10.7b, cons 10.7%) with margins at 11.9% (+70bp YoY/+20bp QoQ, est 11.7%). EBITDA/unit grew ~6.3% YoY (+1.5% QoQ) at Rs8.9k/unit.

* Led by lower other income at ~Rs227m (est Rs350m) due to fair valuations loss on investments at ~Rs412m, Adj.PAT came in below at ~Rs6.2b (est ~Rs6.6b.

* TVSCS performance - AUM of ~Rs271.9b (+7% YoY), PBT at Rs3.21b (vs Rs4.3b YoY and Rs2.16b QoQ), CAR is 19.4%. Collections for 3QFY25 at ~Rs70b (vs ~Rs50b YoY), disbursement at ~Rs74b (vs ~Rs69b YoY).

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