Buy Tube Investments of India Ltd For Target Rs.2,575 by Motilal Oswal Financial Services Ltd
Strong double-digit growth across segments Recovery of incremental commodity costs to support margins
* Tube Investments (TIINDIA)’s 2QFY27 adj. PAT at INR1.9b was above our est. despite an 80bp miss on EBITDA margin. Engineering division was the worst-performing segment, with segmental margins contracting ~250bp YoY while the mobility business saw a ~100bp margin improvement.
* Despite strong revenue growth during the quarter, margins remained under pressure due to commodity inflation. However, TII expects to fully recover the cost inflation over the next few quarters. TIINDIA offers diversified growth drivers, supported by steady growth in its core business (~7% S/A PAT CAGR over FY26–28E) and CG Power, alongside the long-term upside potential of businesses being incubated under its TI-2 strategy. We reiterate our BUY rating with a TP of ~INR2,575 (premised on FY28E SoTP; our valuation is based on a 14x PER for the standalone business)
Earnings beat our estimate despite margin pressure
* TIINDIA’s standalone revenue grew 28% YoY to INR27.1b (17% above our est.).
* EBITDA margin contracted ~300bp YoY to 10.1% (vs our est. of 10.8%)
* As a result, EBITDA declined 1% YoY to INR2.7b (9% above our estimate).
* Segmental result: ? Mobility business revenue grew 28% YoY to INR2.5b, while EBIT margin improved 100bp YoY at 3.2% ? Engineering business revenue grew 32% YoY to INR18.2b, while EBIT margins contracted 250bp YoY to 9.4% ? MFB revenue grew 16% YoY to INR4.7b, while EBIT margins contracted 40bp YoY to 10.4% ? Other business revenue grew 15% YoY to INR2.6b, while EBIT margins were largely flat YoY at 7.8%
* Adj. PAT was largely flat YoY at INR1.8b (10% above our estimate).
Highlights from the management commentary
* TII’s growth is supported by its core engineering and manufacturing businesses, CG Power and emerging businesses incubated under the TI-2 strategy, providing multiple avenues for sustained growth. The standalone business is expected to deliver steady growth, supported by its diversified product portfolio and market opportunities
* Near-term profitability is impacted by commodity inflation. However, management expects to fully recover the cost increases over the next 1– 2 quarters, supporting a gradual margin recovery and EBITDA growth.
* TIINDIA’s EV portfolio spans electric trucks, three-wheelers, small commercial vehicles and tractors. Its early-mover advantage, established customer deployments, dealer network and service capabilities position it to benefit from rising EV penetration; management targets EBITDA breakeven in electric trucks by Q4FY27 and two other businesses by Q4FY28.
* Beyond clean mobility, the medical devices business is scaling up its wound-care and newly acquired product portfolio, while the CDMO business is progressing toward commercialization following commissioning of its semi-commercial facility. These businesses, alongside potential acquisitions and adjacencies, offer incremental growth avenues over the medium term.
Valuation and view
* Despite strong revenue growth during the quarter, margins remained under pressure due to commodity inflation. However, TII expects to fully recover the cost inflation over the next few quarters. TIINDIA offers diversified growth drivers, supported by steady growth in its core business (~7% S/A PAT CAGR over FY26–28E) and CG Power, alongside the long-term upside potential of businesses being incubated under its TI-2 strategy. We reiterate our BUY rating with a TP of ~INR2,575 (premised on FY28E SoTP; our valuation is based on a 14x PER for the standalone business).
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