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Performance below estimates; 2HFY25E to be better

To launch 3W cargo and e-tractors/e-SCVs in the next 2-3 months

* Tube Investments (TIINDIA)’s 2QFY25 result was weak, with standalone PBIT margin at 9.9% (-110bp YoY, vs. est. 10.6%), hit by one-offs in engineering segment and railway pricing challenge. However, management remains optimistic for 2HFY25, expecting strong 2W volumes, improved exports, and diversification beyond automotive that would drive growth.

* We cut our FY25E/FY26E consolidated EPS by 24%/14% to factor in moderate demand in domestic PVs and CVs and slower than expected ramp-up at CG Power. The stock trades at 65x/54x FY26E/FY27E consol. EPS. Reiterate BUY with a TP of ~INR4,750 (premised on Sep’26E SoTP).

One-off in engineering and pricing challenges in railways hurt margins

* TIINDIA’s 2QFY25 standalone revenue/EBITDA/PAT were ~+5%/-2%/-8% YoY at INR20.6b/INR2.5b/INR1.7b (vs. est. INR21.2b/INR2.6b/INR1.9b). Its 1HFY25 revenue/EBITDA/PAT were ~+7%/+4%/-2% YoY. For 2HFY25, we expect its revenue/EBITDA/PAT at ~+10%/+4%/-2% YoY.

* Revenue during the quarter was driven by ~4%/1%/18% YoY growth in INR13.2b/4.0b/2.4b for engineering/metal formed/ other business (est. INR13.9b/4.1b/2.3b). Revenue for the mobility division declined 5% YoY to INR1.7b (est. INR1.8b).

* Gross margin dipped 10bp YoY/60bp QoQ to 36.2%. This resulted in lower-than-expected EBITDA at INR2.46b (-2% YoY; est. of INR2.64b).

* EBITDA margin contracted 90bp YoY/30bp QoQ to 11.9% (est. 12.5%).

* Overall PBIT margin was down 160bp YoY/20bp QoQ to 10.5% (est. 11.5%). The dip was largely due to lower margin in the metal formed business at 11.3% (-210bp YoY; est. of 13.2%), while PBIT margin for the other business contracted 480bp YoY to 3.6% (est. of 6.3%).

* Mobility and engineering divisions reported a PBIT margin of -0.2% (vs. - 1.7% in 2QFY24; est. of -1.5%) and 12.3% (-100bp YoY; est. of 12.8%), respectively. Adjusted for one-off, margin for the engineering division would have been stable YoY.

* Adj. PAT declined 8% YoY to INR1.7b (est. INR1.9b).

* CFO/FCF declined 11%/48% in 1HFY25.

Highlights from the management commentary

* Outlook: While domestic PV and CV segments are witnessing weak demand, management expects its core segment revenues to remain stable given its diversification into non-auto as well as exports. In exports, while demand in the EU is soft, TI is shifting its focus toward the U.S. and South Asia, where it expects continued momentum. Overall, management expects 2H to be better than 1H.

* New launches: The company plans to introduce e-tractors and e-SCVs within the next 2-3 months. In the e-truck segment, customer acceptance is growing as they experience the operational and environmental benefits, despite the higher cost. TI holds a healthy order book in this segment over the coming quarters.

* Medical devices: The domestic market is performing well, with double-digit growth (~18-19%). In exports, regulatory processes such as CE registration are underway, which the management expects to conclude in the next one to two quarters, setting up for export growth.

* CDMO: TIINDIA’s CDMO lab has begun operations, currently working with around 30 customers across 40-45 projects. The kilolab is commissioned, and the semi-commercial plant is expected to begin trial batches by Nov’24, pending environmental clearance for the full operation.

Valuation and view

* TIINDIA offers diversified revenue streams, with strong growth in the core business (~15% CAGR in standalone PAT over FY25-27E), ramp-up in CG Power, and the optionality of new businesses incubated under the TI-2 strategy.

* The stock trades at 65x/54x FY26E/FY27E consolidated EPS. Reiterate BUY with a TP of ~INR4,750 (premised on Sep’26E SOTP, based on 36x for the standalone business, valuing listed subsidiaries at 15% HoldCo discount and adding INR353/share for the three EV businesses).

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