Buy Tube Investments of India Ltd For Target Rs.3,379 by Motilal Oswal Financial Services Ltd
In-line earnings despite margin miss TI Medical and CDMO to ramp up in FY27
* Tube Investments’ (TIINDIA) 1QFY27 adj. PAT at INR1.6b came in line with our est. despite a 70bp miss on EBITDA margin. MFD was the worstperforming segment, with segmental margins contracting 320bp YoY.
* Despite near-term margin headwinds, TIINDIA offers diversified revenue streams, with steady growth in the core business (~7% S/A PAT CAGR over FY26-28E) and CG Power, as well as the optionality of new businesses incubated under the TI-2 strategy. We reiterate our BUY rating with a TP of ~INR3,379 (premised on FY28E SoTP; our valuation is based on a 15x PER for the standalone business, valuing the listed subsidiaries at a 35% HoldCo discount).
Earnings in line
* TII’s standalone revenue grew 18% YoY to INR23.6b (6% above our est.). EBITDA margin contracted 190bp YoY to 10.4% (vs our est. of 11.1%).
* Segmental performance:
* Mobility business revenue grew 26% YoY to INR2.5b, while EBIT margin was largely flat YoY at 3.6%.
* Engineering business revenue grew 21% YoY to INR15.6b, while EBIT margin contracted 200bp YoY to 9.8%.
* MFB revenue grew 12% YoY to INR4.1b, while EBIT margin contracted 320bp YoY to 6.8%.
* Other business revenue grew 8% YoY to INR2.56b, while EBIT margin expanded 90bp YoY to 8.1%.
* As a result, EBITDA was largely flat YoY at INR2.5b (in line). ? Adj. PAT declined 6% YoY to INR1.6b (in line).
Highlights from the management commentary
* TII’s core business remains fundamentally strong, with the Engineering business having delivered 17% volume growth and exports growing in double digits, while MFP revenue growth improved to 11.5% during the quarter. Further, with the 2-3 quarter lagged recovery of steel inflation, management expects margins to recover and improve, despite near-term margins remaining under pressure due to input cost inflation.
* TII is building multiple growth engines beyond their core business. TI Medical continues to target ~20% growth, while the 3xper CDMO platform is progressing toward commercial scale-up. Investments in additive manufacturing and optoelectronics further expand the company's addressable markets.
* 1Q marked record revenue of ~INR2.4b for TI Clean Mobility, with strong traction across HCVs, SCVs, and three-wheelers. Management indicated that peak quarterly losses are likely behind the business.
Valuation and view
* Despite near-term margin headwinds, TIINDIA offers diversified revenue streams, with steady growth in the core business (~7% S/A PAT CAGR over FY26- 28E) and CG Power, as well as the optionality of new businesses incubated under the TI-2 strategy. We reiterate our BUY rating with a TP of ~INR3,379 (premised on FY28E SoTP; our valuation is based on a 15x PER for the standalone business, valuing the listed subsidiaries at a 35% HoldCo discount)
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