IGI Logo

Steady show; credible EV strategy at play

In 3QFY24, TVS Motor (TVSL) reported EBITDA margin of 11.2% (+110bps YoY, +20bps QoQ), broadly in-line with JMFe led by cost reduction efforts. Domestic 2W demand, so far, is led by urban regions and there are early signs of revival in the rural demand. Affordability and currency related challenges in the international markets have largely bottomed out. With respect to EVs, TVSL plans to ramp-up EV business by introducing new products and expanding dealer network going ahead. Overall, we expect TVSL’s outperformance to continue on the volume front (led by premiumization and EV product launches), while higher operating leverage and astute cost management would help on the margin front. We estimate revenue / EPS CAGR of 16%/30% over FY23-26E. We maintain BUY with a Mar’25 TP of INR 2,100 (30x Mar’26E EPS [25x earlier]). Prolonged slowdown in international markets remain a key risk.

3QFY24 – In-line performance: In 3QFY24, TVS Motor reported net sales of INR 82.5bn (+26% YoY, +1% QoQ), c.3% below JMFe. Volumes increased 25% YoY (2.5% QoQ). Blended realisation was flattish YoY / -1% QoQ. EBITDA margin stood at 11.2% (+110bps YoY, +20bps QoQ), broadly in-line with JMFe. Reported EBITDA stood at INR 9.2bn (+40%YoY, +3%QoQ). Adj. PAT for the quarter was INR 5.9bn (+68% YoY, +11% QoQ), 4% above JMFe, mainly led by lower than expected interest expense and higher other income (incl. gain on fair value of an investment).

Demand environment: Domestic 2W volumes are gradually improving and demand recovery was led by premium segment (125cc+) in the semi-urban and urban region. The management indicated that there are early signs of revival in rural demand (as witnessed by strong festive growth) and expects recovery to be gradual. Improvement in retail financing (c.65% during 3Q) is aiding the volume recovery. Dealer inventory stands at an optimum level, below c.30 days. Overall, the management expects TVSL to outperform the industry in both domestic and export segments led by its extensive product portfolio. Demand in the international market continues to remain impacted by high inflation, and currency depreciation. However, management highlighted that the worst is behind and it expects steady recovery in exports going forward. The company remains watchful of the Red Sea and its possible impact in the near-term.

Margin outlook: 110bps YoY EBITDA margin expansion during 3Q was led by cost reduction initiatives (incl. RM cost) partially offset by higher marketing spends. The company indicated that it will continue to judiciously invest towards brand building and marketing efforts. Overall, TVSL expects a) richer product mix, b) cost-reduction initiatives, c) higher operating leverage (especially for EVs) to be additional levers for margin expansion.

Update on EV initiatives: The company indicated that ramp-up in iQube sales is led by positive customer response. Currently, TVS iQube is present across 400 touchpoints and the company plans to double its presence by Mar’24. The company plans multiple new launches (starting 4QFY24) and build a complete EV product portfolio over next 8 qtrs. Launch of E3W is also expected soon. TVSL’s increasing focus on the EV segment through new launches as well as strategic tie-ups globally will help build scale. The company started exporting iQube during 3Q in select geographies. PLI application is in advanced stages of approval.

Investment, capex and subsidiary performance: 1) Capex guidance for FY24 stands at INR c.10bn. Investment guidance for FY24 stands at INR c.11bn. The management reiterated that all recent investment has been towards future mobility business and this will yield returns over the coming years. The investments will also help the company to enter and expand in developed markets. 2) TVS Credit: AUM stands at INR253bn; Disbursements during 3Q were at INR 70bn; GNPA as on Dec 31, 2023 stood at 3.1%; PBT came-in at INR 2.29bn vs. INR 1.80bn QoQ.

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361