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Strong underlying margins; high valuations limit upside

TVSL posted a ~3% miss on consensus EBITDA amid 2% lower ASPs QoQ (due to introduction of the lower-priced E-2W variant as a response to the heavy competition in the industry). Management indicated a healthy 11% industry growth during Navratras (vs 4% in the entire festive so far), and expects improvement during the Dhanteras-Diwali period; Q3 industry growth is seen at ~7-8% YoY, with TVSL’s outperformance expected to continue. TVSL has been outperforming peers given its recently launched Jupiter 110cc receiving a fairly strong response. Notably, adjusted for the PLI incentive, the company’s margins would be ~13% for Q2 vs ~12.5% in Q1 (reported margins for Q2 at 11.7%), which is commendable considering the hyper price-based competition under way in E-2Ws. We marginally trim FY26E/27E EPS and retain ADD on the stock with SoTP based TP of Rs2,600 (on 30x Sep-26E core PER + Rs174 for the captive finance arm). TVSL’s competitive positioning continues to improve, with market-share gains during Q2; however, implied valuations at ~29x core Sep-26E PER limit the upside.

Revenue miss on lower ASPs driving the 3% miss on EBITDA

Revenue/volume grew 13%/14% YoY (3% below our estimate), with ASPs down 2% QoQ due to introduction of the lower-priced iQube variant. EBITDA was up 20% YoY to ~Rs10.8bn, coming 3.3%/2% below consensus/our estimates. Gross margin was flattish QoQ, amid benign RM costs and a 30bps QoQ decline in staff costs. EBITDA margin grew by 24bps QoQ to 11.7% (below consensus estimate). PAT stood ~6% lower than our estimate amid a miss on EBITDA, a lower than expected other income, and a higher than expected interest cost.

Earnings Call KTAs

1) Management highlighted expectations of 7-8% growth in the 2W industry in Q3 (industry growth during festive so far is 4%, including 11% during Navratras; TVSL has outperformed peers and expects pick-up in the run up to Diwali on the back of good monsoons and reservoir levels amid signs of rural recovery (slightly ahead of urban growth this year; TVSL is hopeful of rural performing in line with urban this year). The company expects to continue outperforming the industry. 2) TVSL believes that the worst is behind for 2Ws in export markets like Africa (~57% contribution in H1FY25), though recovery in 3Ws would begin from Q3/Q4. Other regions like Latin America, Middle East, and Asia (except Bangladesh) are seen doing well, with international retails ahead of wholesales for TVSL. 4) It targets ahead-of-industry growth in the E-2W segment backed by expanding product offerings and distribution (currently at 750 touchpoints); it has launched the 2.2KwH iQube variant from H1; it would be launching a new product in FY25 for addressing the new segment; a new E-3W is also likely to be launched soon; iQube exports to the ASEAN market have commenced; it expects India to be a major export hub. 5) EVs are contribution-margin-positive, with the bottom line expected to grow with increase in EV revenue (which is Rs.16bn for H1); 5) Raider continues to receive good traction; initial response to the new 110cc Jupiter variant has been good. The company has R&D capabilities around other powertrains and would monitor response to CNG 2Ws before going ahead with development. 6) All of TVSL’s E-2W products are eligible for PLI, though revenue recognition is yet to take place. 7) TVSL is confident of further margin expansion on the back of volume growth, better product mix, and continued efforts toward cost reduction. 8) Spares/exports revenue was Rs9.3bn and Rs22.3bn, respectively. 9) In Q2, staff costs included an ESOP provision of Rs110mn; other income included fair value gain of Rs230mn. 10) Capex guidance is Rs12-14bn for FY25, with investment at Rs15bn

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