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Miss on operating profit due to higher other expenses

FY25E capex for S/A business is INR5b, while it is INR4.7b for TICMPL

* Tube Investments of India (TIINDIA)’s 4QFY24 result was operationally weak, as margin came in at 11.1% (v/s est. 12.7%), mainly due to higher other expenses and rising competition in its metal-formed business on the railway side. TIINDIA has further outlined a capex of INR4.7b for TICMPL, expecting these businesses to be the future growth drivers despite a delay in ramp-up.

* We cut our FY25E/FY26E consolidated EPS by ~8/7%% to factor in margin pressure in the metal-formed business. We value its EV vertical (ex- SCV) at INR350 per share in the SoTP after assigning a value to its e-HCV business. The stock trades at 60x/49x FY25E/FY26E consol. EPS. We reiterate our BUY rating with a TP of ~INR4,400 (premised on Mar’26 SoTP).

Political contributions result in higher other expenses

* TIINDIA’s S/A revenue grew 18% YoY to INR19.6b (vs. est. INR20b), due to lower-than-est. growth in the engineering /metal-formed businesses, offset by higher-than-est. growth in the others business vertical.

* Gross margin contracted 90bp YoY (+20bp QoQ) to 36.3%.

* EBITDA rose 3% YoY to INR2.2b (vs. est. INR2.5b). EBITDA margin contracted 160bp YoY to 11.1% (vs. est. 12.7%) as other expenses remained elevated (grew 150bp YoY as a % of sales). Other expenses were higher on account of political contributions.

* Further, lower-than-estimated other income was offset by lower tax, leading to adj. PAT declining 9% YoY to INR2.5b (vs. est. INR3.0b).

* During FY24, revenue/EBITDA/adj. PAT rose 5%/5%/4% YoY.

* Revenue from the Mobility business remained flat YoY at INR1.5b. Its PBIT margin was -5.7% (vs. -5.6%/-3.2% in 3QFY24/4QFY23 and est. 1%).

* Revenue from the Engineering business grew 22% YoY to INR12.8b. PBIT margin was 12.5% (vs. 12.4%/12.6% in 3QFY24/4QFY23 and est. 13.6%).

* Revenue from the Metal-formed Product business grew 11% YoY to INR3.9b. Its PBIT margin was 11% (vs. 12.1%/12.9% in 3QFY24/4QFY23 and est. 10.8%).

* Revenue from the Others business vertical grew 20.5% YoY to INR2.3b. PBIT margin was 7.5% (vs. 6.3%/5.8% in 3QFY24/4QFY23 and est. 3.9%).

* Consol. business revenue grew 19% YoY to INR44.9b, but EBITDA/Adj. PAT declined 9%/16% YoY to INR4.5b/INR2.8b during the quarter.

* The Board declared a final dividend of INR1.5/share for FY24 (the total dividend for FY24 stood at INR3.5/share, similar to the last year levels).

* S/A’s FY24 FCF stood at INR2.6b (vs. INR4.4b in FY23), mainly due to lower operating cash flow that stood at INR5.9b (vs. INR6.2b in FY23), despite a lower capex of INR2.6b (vs. INR4.4b in FY23).

* The Board has approved long-term borrowing up to INR3.5b by way of term loans or NCDs in one or more tranches in FY25, although it has not decided anything on the deployment of the same.

Highlights from the management commentary

* Metal-formed business: Despite growing in double digits, which was in line with the 2W industry growth, the benefits of lower RM costs had to be passed on to the customers. This limited its revenue growth. As competition has been mounting on the railway business side, it has affected margins for this business vertical.

* e-SCV: This product is planned to be launched in the next two months (JulAug’24) and the company is investing INR3.2b for the Chennai manufacturing facility.

* e-3Ws: There was a drop in the primary sales of e-3Ws as there was a transition from FAME scheme to the new EMPS scheme. TIINDIA has taken a price hike after it and has taken some cost absorption too.

Valuation and view

* TIINDIA offers diversified revenue streams, with strong growth in the core business (~20% S/A PAT CAGR over FY24E-26E), ramp-up in CG Power, and the optionality of new businesses incubated under the TI-2 strategy.

* The stock trades at 60x/49x FY25E/FY26E consolidated EPS. We reiterate our BUY rating and a TP of ~INR4,400 (premised on Mar’26E SOTP; 36x for the standalone business, valuing listed subsidiaries at a 20% HoldCo discount, and adding INR350/share for the three EV businesses).

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