Buy Tube Investments of India Ltd for the Target Rs.3,515 by Motilal Oswal Financial Services Ltd
Steady performance
Focusing on EVs, CDMO and Medical in TI2
* Tube Investments’ (TIINDIA) 1QFY26 PAT of INR1.68b was ahead of our estimate of INR1.61b, primarily aided by higher other income even as EBITDA margin was in line with our estimate. Improved mobility division margin surprised positively.
* We expect standalone revenue to pick up in the coming quarters, led by supplies to a new Hyundai Pune plant that is likely to commercialize from Oct25, the ramp-up of a new CRSS plant, and the execution of a Railways order from 4QFY26. Adjusted for stakes in CG Power and Shanti Gears, standalone business is attractively valued at 16.4x/14.2x FY26E/FY27E EPS. Reiterate BUY with a TP of ~INR3,515 (premised on Jun’27E SOTP, based on 30x PER for the standalone business, valuing listed subsidiaries at 30% HoldCo discount).
Margins in line; PAT beat led by higher other income
* Revenue rose 2.4% YoY to INR20.1b (in line). Mobility/engineering/metal revenue grew 9.8%/~3%/2.3% YoY. The others segment’s revenue, however, fell 4.3% YoY.
* Gross margin expanded 80bp YoY to 37.6%.
* EBITDA grew 3% YoY to INR2.5b and was in line with our estimate. EBITDA margin remained flat YoY at 12.3% (est. 12%).
* Segmental EBIT performance: Mobility margins expanded sharply by 260bp YoY to 3.5% due to improved volumes, led by seasonality. On the other hand, while the engineering business margin contracted 60bp YoY to 11.8%, margins for the metal formed division remained stable YoY at 10%.
* Other income was ahead of our estimate at INR234m (est. INR150m).
* As a result, PAT at INR1.68b came in ahead of our estimate of INR1.61b, marking a 9% YoY increase.
* RoIC (annualized) in 1Q stood at 39% vs. 47% YoY.
* Free cash flow stood at INR820m for the quarter.
Highlights from the management commentary
* Engineering: The new CRSS plant has commenced operations in 1Q and is expected to ramp up to full capacity in a year.
* Metal Formed: TIINDIA remains optimistic about demand pick-up in this segment as it is a supplier to Hyundai from its upcoming new Pune plant, which will commence operations from Oct’25. Further, in 4QFY25, TIINDIA won a new Railways order worth INR10b spread over seven years, which is expected to commence from 4QFY26.
* EV segment: The company focuses on cost reduction, localization and economies of scale to improve gross margins. It expects cost reduction through in-house battery pack assembly. Currently, the EV business is operating at low gross margins, with operational breakeven unlikely in FY26 (as guided earlier) due to slower-than-expected scale-up so far.
* Update on e-3Ws: To tackle increasing competition, TIINDIA plans to introduce a model refresh in 2QFY26, enter new battery sub-segments apart from the 10kWh segment it already operates in, and launch new variants in the cargo (L5N) and erickshaw (L3) segments. The entry into multiple 3W segments would also help to improve dealer viability.
* Update on e-truck segment. TIINDIA has so far launched a 6x4 55-ton heavy-duty truck with a 4x2 variant in the works. It expects to launch a truck in the tipper segment. With this, TIINDIA would have a presence in the three large markets in the truck segment. It plans to apply for PLI incentive for its e-trucks business in 2Q and is confident about its products meeting the eligibility norms.
* Capex guidance for the standalone business for FY26 stands at INR3.5b, which will be focused on the engineering and metal-formed products segments.
* Future capital allocation: Management has indicated that TIINDIA would continue to focus on ramping up its presence in these three key segments: TICMPL, TI and CDMO. For any other future growth avenues, TIINDIA would look to enter through partnerships.
Valuation and view
* TIINDIA offers diversified revenue streams, with healthy growth in the core business (~11% S/A PAT CAGR over FY25E-27E), growth in CG Power, and the optionality of new businesses incubated under the TI-2 strategy. Adjusted for stakes in CG Power and Shanti Gears, the standalone business is attractively valued at 16.4x/14.2x FY26E/FY27E EPS. Reiterate BUY with a TP of ~INR3,515 (premised on Jun’27E SOTP, based on 30x PER for the standalone business, valuing listed subsidiaries at 30% HoldCo discount)
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