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Margins resilient despite inflated staff exp

Valuation and View –

Yet to be accrued PLI benefits to support margins TVSL 2QFY25 results was mixed bag as ASP decline of 2.5% QoQ (-0.9% YoY) at Rs75.1k/unit (est Rs77.8k/unit) came in as surprise despite price hikes and favorable mix. This was led by launch of iQube 09 variant at lowered price point. However, margins continue to be resilient at 11.7% (+70bp YoY/ +20bp QoQ). Gross margin expanded ~250bp YoY (-10bp QoQ) at 28.5% partially offset by higher employee cost which grew ~26.4% YoY due to; 1) new manpower addition of ~250 each in electric, software and digital initiatives and 2) ESOP provision of Rs110-120m. Key operating metrics such as EBITDA/vehicle remain elevated at ~Rs8.8k/unit (+5% YoY/ -0.5% QoQ). The management indicated rural/semi-urban markets are performing better vs urban (we have been indicating the trend since last 2-3 quarters in our channel check note). 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 price hikes. TVSL currently trades at 36.9x/30.5x of FY26/FY27 EPS (v/s HMCL/ BJAUT of 21- 26x on FY27 EPS). We believe, it should continue to trade at premium as we expect EPS CAGR of ~25.9% over FY24-27E. Sustained market share gains led by aggressive product pipeline, scope of external investments in to EV vertical are re-rating triggers. We reiterate TVS as our preferred pick among 2Ws with ADD with revised TP of Rs3,030 as we continue to value co at 35x Mar-27 EPS plus Rs124 value to TVS credit. We have cut FY26/27 EPS by 4%/2% to reflect upon higher staff cost and lower ASPs.

Result Highlights –

Steady as gains on GMs offset by higher staff cost

* Revenues grew 13.3% YoY (+1.2% QoQ) at ~Rs92.3b (est ~Rs95.6b) led by 14.3% YoY (+13% QoQ) growth in volumes at ~1.23m units while ASP de-grew 0.9% YoY (-2.5% QoQ) at ~Rs75.1k/unit (est Rs77.8k/unit). Decline in ASP was led by launch of lower priced iQube 09 variant.

* Gross margins came in-line at 28.5% (-10bp QoQ, est 28.4%) and sustained elevated levels led by benign RM. EBITDA grew ~20% YoY (+12.5% QoQ) at Rs10.8b (est Rs11.4b) with margins at 11.7% (+70bp YoY/+20bp QoQ, est 12%). EBITDA/unit grew ~5% YoY (-0.4% QoQ) at Rs8.8k/unit. EBITDA margin boost as yet to be accrued PLI benefit still to play out.

* Led by lower other income at Rs299m (est Rs465m, -17.6% QoQ), Adj.PAT came in at ~Rs6.6b (+23.4% YoY/+14.7% QoQ, est Rs7.2b, cons Rs7b).

* Investments in Subs during 2QFY25 – TVS Singapore at ~Rs2.2b (v/s ~Rs1.64b in 1QFY25)

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