Buy TVS Motor Company Ltd For Target Rs. 3,150 By JM Financial Services
Strong Quarter; Outperformance to continue
In 4QFY25, TVS Motor (TVSL) reported EBITDA margin of 14%, 150bps above JMFe. 260bps YoY margin expansion was primarily led by inclusion of full-year PLI benefits and cost reduction initiatives. Excluding PLI benefits, EBITDA margin for 4Q stood at 12.5%. For FY26, domestic 2W industry growth is expected to be similar to FY25, supported by improved consumer sentiments and pickup in rural demand. Demand in the international market is also improving gradually. With respect to EVs, TVSL plans to ramp-up EV business by a) introducing new products (both E2W and E3W) in the near-to-medium term and b) expanding dealer network. Overall, we expect TVSL’s outperformance to continue on the volume front led by premiumisation and EV product launches. Richer mix, higher operating leverage, astute cost management is expected to drive margin performance. We estimate revenue / EPS CAGR of 18% / 32% over FY25-27E. We maintain BUY with a Mar’27 TP of INR 3,150 (32x Mar’27E EPS). Industry slowdown remains a key risk.
* 4QFY25 – Margin beats estimates: In 4QFY25, TVS Motor reported net sales of INR 95.5bn (+17% YoY, +5%QoQ), 2% above JMFe. Volumes increased 15% YoY (flat QoQ). Blended realisation increased 2% YoY (+5% QoQ). EBITDA margin stood at 14% (+260bps YoY, +210bps QoQ), 150bps above JMFe. Reported EBITDA stood at INR 13.3bn (+44% YoY, +23% QoQ). Adj. PAT for the quarter was INR 8.5bn (+76% YoY, +38% QoQ), 15% above JMFe.
* Demand environment: Domestic ICE 2W industry vols. grew by 7% YoY in FY25 (flat in 4QFY25). Management expects reduction in repo rate, improvement in retail financing and income tax rebate to support consumer sentiments going forward. Rural demand is also expected to pickup, led by a normal monsoon. While domestic 2W industry growth is expected to moderate in 1QFY26, full-year FY26 growth is likely to be similar to FY25. Backed by its strong brand portfolio, the management expects TVSL to outperform the industry. With respect to exports, TVSL indicated growth in 2HFY25 was stronger than 1HFY25. LATAM and Asia (ex.Bangladesh) continue to do well, although challenges persist in Middle-East and Africa. Overall, demand momentum in the international market is expected to continue, led by markets like LATAM and gradual recovery in Africa.
* Margin outlook: 260bps YoY margin expansion during 4Q was driven by a) inclusion of PLI benefit pertaining to the full year FY25 b) sustained cost reduction initiatives and c) growth in volumes. Excluding PLI benefits of the previous quarters, 4QFY25 EBITA margin stood at 12.5% (PLI benefit for 4Q is 0.5% of revenue). Going forward, TVSL expects a) richer product mix, b) cost-reduction initiatives, c) operating leverage to be the levers for margin expansion.
* Update on EV initiatives: TVSL indicated that the new iQube variants (2.2kwh, 3.4kwh, 5.1kwh) have been received well by customers. Currently, iQube is available across ~950 touchpoints (vs. ~900 in 3Q) and the company plans further expansion going ahead. Management highlighted that several EVs are in the final stages of development and are expected to be launched in the upcoming quarters. E3W, ‘King EV Max’, has garnered a good customer response and the company plans to further scale it going ahead. TVSL has started accruing PLI benefits and has applied for PLI certification for all its recent launches
* Investment, capex and subsidiary performance: 1) TVSL is investing in Norton Motorcycle towards designing, engineering and product development. The company targets to launch new products by FY26 end. 2) Capex for FY25 stood at ~INR c.18bn, largely towards product development and some capacity addition. Investments for the quarter stood at ~INR c.6bn, mainly towards Norton and TVS Digital. Investments in FY26 are expected to be similar to FY25. 3) TVS Credit: AUM stands at INR266bn+; PBT came-in at INR 3bn (vs. 1.97bn YoY). The management highlighted that despite slow credit demand, it was able to maintain stable disbursement supported by increased market penetration. 4) Revenue from EV / Spares / Exports stood at INR 8.9bn / INR 9.1bn / INR 23.9bn during 4QFY25.
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SEBI Registration Number is INM000010361
