Buy Tube Investments of India Ltd For Target Rs.3,690 by Motilal Oswal Financial Services Ltd
Miss on estimates due to weak revenue growth
Targets operating breakeven for its two existing EV products by FY26
* Tube Investments (TIINDIA) reported a weak 3QFY25 performance, hit by subdued growth across key segments. The near-term outlook appears moderate, with key challenges in: i) Engineering – revenue growth pressure from metal price volatility and an uncertain export environment, ii) Metal Formed – weaker pricing in the railway segment, and iii) EVs – slower ramp-up.
* Considering the same, we cut our FY25E/FY26E consol. EPS by 3.5%/8.7%. However, structural growth drivers are still in place as we expect a ~16%/ 29% consol. revenue/PAT growth over FY25-27. Further, after the recent correction, the stock appears attractive at ~53x/44x FY26E/27E consol. EPS. Reiterate BUY with a TP of ~INR3,690 (premised on Dec’26E SoTP).
Revenue growth muted; EBITDA margin better at 12.7% (est. 11.8%)
* TIINDIA’s 3QFY25 standalone revenue/EBITDA/PAT grew ~0.6%/1.5%/ 2.1% YoY to INR19.1b/2.4b/1.6b (est. INR20.6b/2.4b/1.7b).
* Revenue for mobility/engineering declined 4%/1% YoY, while it was offset by growth in metal formed/other businesses by 2%/15% YoY, respectively.
* The muted revenue growth in the engineering division was primarily due to lower metal prices, though volumes grew by 7-8%.
* Gross margin improved 230bp YoY/220bp QoQ to 38.4%.
* This resulted in an in-line EBITDA of INR2.4b (+1.5% YoY). EBITDA margin were largely flat YoY (+80bp QoQ) at 12.7% (est. 11.8%).
* Segmental EBIT performance- Mobility: -0.6% (-5.6% in 3QFY24, est. -3%), Engineering: 12.9% (12.4% in 3QFY24, est. 12.6%), Metal formed: 10.1% (12.1% in 3QFY24, est. 10.9%), Other businesses: 4.5% (6.3% in 3QFY24, est. 5%).
* Margins in the metal formed division weakened due to lower pricing in the railway segment, and a temporary dip in PV-related demand, especially in the door frame business, led by model and year-end changes.
* However, lower other income resulted in a miss on Adj. PAT at IN1.6b (+2% YoY, est. INR1.7b).
* The Board declared an interim dividend of INR2 per share for FY25.
Highlights from the management commentary
* TIINDIA's 3W volumes underperformed the industry with a flat YoY growth at 1,837 units sold in 3Q vs. industry growth of 19% YoY. Management reasoned that while 3Q industry growth was led largely by a festive boost, which is prevalent in North and West India, TIINDIA has a stronger market presence in South India and it has not lost share in this region.
* Management targets to launch one new SCV and a new tractor EV in 4Q, with a ramp-up in FY26. TIINDIA aims to achieve operating breakeven for its two existing EV products in the next FY, while the other two will still require investments.
* Export opportunities: It exports 35-40% to the US, with half of it linked to longterm OEM relationships, making it relatively insulated from immediate tariff changes. Beyond the engineering division, export growth opportunities are being explored in bicycles, Metal-Formed products, and industrial chains.
* Acquisition strategy: Management has indicated that they would remain focused on existing TI2 and TI3 businesses and target to ramp them up before considering further inorganic growth options. Management also indicated that valuations are currently not supportive of considering inorganic growth.
Valuation and view
* TIINDIA offers diversified revenue streams, with strong growth in the core business (~14% CAGR in standalone PAT over FY25-27E), ramp-up in CG Power, and the optionality of new businesses incubated under the TI-2 strategy. However, we have cut out FY26E/27E consol. EPS by 3.5%/8.7% to factor in the near-term weakness.
* The stock trades at 53x/44x FY26E/FY27E consolidated EPS. Reiterate BUY with a TP of ~INR3,690 (premised on Dec’26E SOTP, based on 36x for the standalone business, valuing listed subsidiaries at a 30% HoldCo discount, and adding INR170/share for the e-3W businesses).
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