Buy TVS Motor Ltd for the Target 5,300 by Emkay Global Financial Services Ltd
TVSL logged another strong quarter, with revenue up 38% yoy led by 28% yoy volume growth/4% qoq ASP rise. EBITDA was up 41% yoy with EBITDAM at 12.8% (dip limited to 30bps qoq as the 130bps gross margin drop was offset by lower other expenses). Growth was broad-based across domestic, exports, and EVs, with TVSL continuing to outpace the industry via sustained premiumization, market-share gains across segments, and resilient execution despite a challenging environment. The management expects 2W demand to remain healthy and guides to double-digit FY27 domestic 2W industry growth (2Q expected to be better than 1Q); TVSL targets sustained outperformance in industry growth led by a diversified product portfolio, accelerating EV franchise (E-2W industry penetration at ~10.6% in Jun-26; TVS the #1 player), and a dominant premium motorcycle portfolio. The worst of the commodity inflation seems to be behind (0.5% hit expected in 2Q vs 3.5% in 1Q); TVSL’s margin expansion to continue, aided by calibrated price hikes (~1.5%/0.5% in 1Q/2QTD), favorable product mix, premiumization, and ongoing cost optimization. TVSL continues to invest aggressively for future growth, with Rs35bn capex earmarked for capacity expansion (2W/3W capacity to reach 8.3mn/0.42mn units by 4QFY27 vs 6.8mnpa/0.25mnpa now) and global rollout of Norton motorcycles (will further strengthen its premium portfolio). We continue to favor TVSL on a structural basis, on its premiumization-led growth, market-share gains across categories, resilient margins, and being a key beneficiary of India’s EV transition (refer to Yet another mega shift in motion, Ather the front runner). We model revenue/EBITDA/PAT CAGR of 19/22/26% over FY26-29E. We raise FY27E/28E EPS by ~4% on higher volume; retain BUY; revise up TP by 6% to Rs5,300 (rolled forward) from Rs5,000, at 35x Jun-28E EPS.
Strong performance across parameters; PAT largely led by higher other income
Revenue was up 38% yoy, led by 28% volume growth and 4% higher ASPs qoq. EBITDA was up 41% yoy, with EBITDAM down by ~30bps qoq, mainly due to ~130bps contraction in gross margin, which was partially offset (by ~90bps) by lower other expenses. PAT was up 51/18% yoy/qoq, mainly led by higher other income on account of fair valuation gain on investments
Earnings call KTAs
1) Demand outlook healthy, with the mgmt guiding for double-digit 2W industry growth in FY27 (2Q better than 1Q; 3Q to be a monitorable given El Niño factor, high base effect in H2 on GST cut) and continual outperformance across domestic+export markets.
2) EV momentum strong, with volume up ~86% yoy (~130k units), improving profitability, capacity expansion, and international rollout underway.
3) Commodity inflation impact (~3.5% in 1Q; ~0.5% expected in 2Q) being mitigated via calibrated price hikes (~1.5%/0.5% in 1Q/2QTD), leveraging product mix (premiumization), and ongoing cost optimization.
4) TVS gaining market share despite competitive discounting, aided by a strong ICE/EV scooter portfolio/premium positioning.
5) International business outlook on strong footing, led by recovery in Africa, LatAm expansion, and strong traction in Asia.
6) ~Rs35bn capex to expand 2W/3W capacity to 8.3mn/0.42mn units by 4QFY27; to support new product investments.
7) Norton rollout on track (Manx, Manx R, Atlas, Atlas GT), with production underway and launches across Europe, India, and US planned for FY27.
8) Mgmt announced a strategic partnership to strengthen lastmile LPG cylinder distribution via sustainable commercial mobility solutions like Cargo.
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