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Valuation and View - Market share gains to persist

TVSL 2QFY24 were in-line to our/street estimates as better than expected gross margins at 26% (+210 YoY/ +60bp QoQ, est 25%) due to favorable mix and soft RM was partially offset by higher other expense at Rs8.2b (+28.9% Yoy/ +18.9% QoQ, est Rs7.3b). This was led by couple of launches (at international platform) and brand spending for export markets. Key operating metrics such as EBITDA/vehicle increased further to Rs8.4k/unit (+16.8% YoY/ +4.5% 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 28.9x/25x of FY25/FY26 EPS (v/s HMCL/ BJAUT of 14.5-18x). We believe, it should continue to trade at a premium as we expect EPS CAGR of ~33% over FY23-25E. 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 Rs1,838 as we continue to value co at 27x Mar-26 EPS plus Rs76 value to TVS credit. We upgrade FY25/FY26 EPS by 4-7% to factor in for better gross margins.

Result Highlights – In-line results, investments in subs continues

* Revenues grew 12.8% YoY and QoQ each at Rs81.4b (in-line) as ASP grew 7.9% YoY (flat QoQ) at Rs75.8k/unit (in-line) whereas volumes grew 4.6% YoY (+12.7% QoQ) at 1.07m units. TVS have taken moderate price hikes in 2Q while no price hikes have been taken so-far in 3QFY24.

* Gross margins came in-line better at 26% (+220bp YoY/ +60bp QoQ, est 25%). This was led by price hikes, favorable product mix and RM softening.

* EBITDA grew 22% YoY (+18% QoQ) at Rs8.99b (in-line, cons Rs6.5b) with margins at 11% (+80bp YoY/ +40bp QoQ, in-line, cons 10%). We think the performance is resilient given EV contribution remain highest (~58k units sold).

* Led by healthy operating performance and higher than expected other income at Rs462m (est Rs300m v/s Rs14m in 2QFY23), Adj.PAT came in at Rs5.4b (+31.7% YoY/ +14.7% QoQ).

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