Buy TVS Motor Company Ltd for the Target Rs. 4,159 by Motilal Oswal Financial Services Ltd
Yet another strong quarter
Continued outperformance to support premium valuation
* TVS Motor Company’s (TVS) 2Q PAT at INR9.1b was below our estimate of INR9.9b, even as the EBITDA miss was just 2%. PAT miss was largely driven by higher interest and depreciation expenses, along with a loss on the fair valuation of its investment in TVS Supply Chain. Backed by GST rate cuts, management expects 2W demand momentum to sustain in 2H and TVS to continue outperforming going forward.
* Given its healthy launch pipeline, we have raised our estimates for FY27 by 5.5%. Overall, we factor in TVS to post a revenue/EBITDA/PAT CAGR of 21%/25%/29% over FY25-28E. Its consistent market share gains across key domestic and export segments, along with a gradual improvement in margins, have driven healthy returns over the years. This strong track record is likely to help sustain its premium valuations in the long run. Given its consistent outperformance, which is likely to continue going forward, we now upgrade TVS to BUY (from Neutral earlier). We now value TVS at 36x Sep’26 EPS (from 35x earlier) to arrive at our TP of INR4,159 per share.
PAT miss due to higher interest, depreciation, and FV loss on investment
* TVS 2Q PAT came in at INR9.1b, below our estimate of INR9.9b, led by higher interest and depreciation expenses as well as a loss on the fair valuation of investments, even as operationally results were only a slight miss.
* TVSL posted its highest-ever quarterly sales of 1.5m units this quarter, up 22.7% YoY. Motorcycle volumes were up 20% YoY, Scooters were up 30.4%, and 3Ws were up 41%. Despite rare earth magnet supply constraints, the EV business reached its best-ever quarter with 80k units sold, recording a 7% YoY growth.
* TVSL revenue came in line with our estimates at INR119.1b, up 29% YoY.
* EBITDA margin expanded 100bp YoY to 12.7% (below our estimate of 13%) and rose just 20bp QoQ despite an 18% volume growth QoQ. Adjusted for PLI incentives accrued from 4QFY25, the like-for-like margin expansion in 2Q stood at 50bp on a YoY basis.
* Margins were below estimates due to higher-than-expected other expenses. The increase in other expenses during 2Q was attributed to the bunching up of certain expenses, which include: 1) higher R&D of INR200- 250m and 2) an increase of INR650m in marketing expenses related to three new launches.
* Overall, 2Q EBITDA grew 40% YoY to INR15.1b (below our estimate of INR 15.5b). PAT miss was primarily led by: 1) higher interest and depreciation and 2) an INR308m loss on the fair valuation of the investment in TVS Supply Chain (had seen a gain in prior quarters).
* TVSL’s 1HFY26 Revenue/EBITDA/Adj PAT stood at INR219.9b/27.7b/16.8b. 1H revenue grew 25% YoY, while PBT rose 36% and EBITDA margins gained 100bp to 12.6%. For 2HFY26, we expect Revenue/EBITDA/PAT to grow 25.3%/17%/34.2% YoY, reaching INR233.7b/30.4b/19.7b respectively.
* CFO for TVS grew 31% YoY to INR30.2b in 1HFY26. The company incurred capex of INR9.5b. Consequently, TVS generated ~INR21b FCF.
Key takeaways from the management interaction
* During the festive season, TVS posted a 32% YoY growth in retail volumes on a like-for-like basis, outperforming the industry’s 24% growth. Industry growth was supported by strong demand in both rural (+24%) and urban markets (+26%). Backed by its new launches (Orbiter, Raider 125, Ntorq 150), TVSL remains confident of sustaining its outperformance going forward.
* TVSL exports grew 31% YoY in 2QFY26 vs industry growth of 26%. The company has successfully expanded its footprint in both Africa and LATAM. While its presence in LATAM remains relatively smaller, it is outperforming the industry. Moreover, the company remains confident of sustaining its outperformance in the region in the coming quarters. It also continues to witness strong traction in its key Asian markets.
* TVSL is gaining strong traction in the 3W EV segment, having already doubled its market share to 11%
* Norton will unveil its first bike at the EICMA in Milan, Italy, next week, with the India launch scheduled for April 2026. The brand’s entry strategy for India will be distinct from that of TVSL, reflecting a more targeted approach for this premium brand. In the European Union, Norton has already begun laying the groundwork for its distribution plans.
Valuation and view
Given TVSL’s healthy launch pipeline, we have raised our estimates for FY27 by 5.5%. Overall, we factor in TVSL to post a revenue/EBITDA/PAT CAGR of 21%/25%/29% over FY25-28E. Its consistent market share gains across key domestic and export segments, along with a focus on gradual improvement in margins, have driven healthy returns over the years. This is likely to help sustain its premium valuations in the long run. Given its consistent outperformance, which is likely to continue going forward, we now upgrade TVS to BUY (from Neutral earlier). We value TVS at 36x Sep’26 EPS (from 35x earlier) to arrive at our TP of INR 4159 per share.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
