Buy TVS Motor Company for the Target Rs 4,470 by Motilal Oswal Financial Services Ltd
Strong performance amid a tough macro environment Continued outperformance to support premium valuation
* TVS Motor Company (TVS)’s 1QFY27 EBITDA came in 8% ahead of our estimate of INR17.8b as the impact of a sharp rise in input costs was offset by improved mix, favorable currency benefits, and tight cost control. However, due to lower other income, higher depreciation, and a higher tax rate, PAT came in line with our estimate at INR10.2b (+32% YoY).
* Given the better-than-expected performance in 1QFY27, we raise our EPS estimates by 8%/5% over FY27-28. Overall, we project TVS to record a revenue/EBITDA/PAT CAGR of 20%/23%/24% over FY26-28E. TVS’s consistent market share gains across key domestic and export segments, along with a gradual improvement in margins, have driven healthy returns over the years. We expect this outperformance to continue, given its healthy new launch pipeline, which in turn is likely to help sustain its premium valuations. We reiterate our BUY rating and value the stock at 35x FY28E EPS to arrive at our TP of INR4,470.
Strong beat on margins while earnings in-line
* TVS posted its highest-ever quarterly sales of 1.63m units this quarter, up 27.7% YoY. Motorcycle volumes were up 19% YoY, scooters rose 36%, and 3W volumes were up 48% YoY. EV sales were up ~86% YoY to ~130k units for the quarter.
* Revenue grew 37.8% YoY to ~INR1.4b, in line with our estimate of INR1.3b.
* Realizations improved 8% YoY to INR85.2k per unit.
* Due to commodity cost inflation, gross margins declined 160bps YoY to 37.2% (80bps below our expectations).
* However, EBITDA margin at 12.8% surpassed our estimate of 12.2%, led by improved mix, favorable currency benefits, and tight cost-control measures.
* As a result, EBITDA came in 8% above our estimate at INR17.8b (+41% YoY).
* Other income included gains on fair valuation of investments held by the company of ~INR1.5b.
* However, due to lower other income excluding fair value gains, higher depreciation, and a higher tax rate, PAT came in line with our estimate at INR10.2b (+32% YoY).
Valuation and view
Given the better-than-expected performance in 1Q, we raise our EPS estimates by 8%/5% over FY27-28. Overall, we project TVS to record a revenue/EBITDA/PAT CAGR of 20%/23%/24% over FY26-28. TVS’s consistent market share gains across key domestic and export segments, along with a gradual improvement in margins, have driven healthy returns over the years. We expect this outperformance to continue, given its healthy new launch pipeline, which in turn is likely to help sustain its premium valuations. We reiterate our BUY rating and value the stock at 35x FY28E EPS to arrive at our TP of INR4,470.
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