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Strength of an incumbent with the agility of a start-up

TVSL, led by its ability to identify ‘growth’ categories with consumer insight-led multiple product actions and scale-up of several newer brands (rare in the 2W industry), has further expanded its market share across categories in H1FY24 with sustained portfolio premiumization. Over the past decade, while TVSL has emerged as a strong incumbent (#2/3 player in ‘growth’ categories), its proactive and aggressive approach in EVs (already a revenue leader in E-2Ws) is also reminiscent of a start-up’s nimbleness even as it strengthens its ICE business. With accelerating 2W industry’s growth, market share gains and margin levers, we upgrade FY24E/FY25E/FY26E EPS by ~3%/~9%/~7% (~20% ahead of consensus). We maintain BUY (top pick in autos) with a revised TP of Rs2,100 (Rs1,550 earlier; unchanged 25x PER rolled-over to FY26E + Rs130 for captive financing arm).

Consistently improving position in ‘growth categories’

Historically, TVSL has successfully navigated multiple transitions (from scooters/mopeds to motorcycles, from motorcycles to premium motorcycles, from domestic to exports) through deep customer insights-led innovation (identifying growth categories, consumer preferences, incubating and growing multiple new brands – a rare phenomenon in the industry; ~13% R&D CAGR over the past five years vs. ~3% on average for industry) and emerged as a strong #2/3 player in the high-growth scooter and premium motorcycle space. It remains the only 2W maker to have substantially expanded its presence in ‘growth categories’ (premium motorcycles, scooters, exports; ~74% volume share in FY23 vs. ~37% in FY13) with noticeable share gains (FY23 market share in domestic premium motorcycles/domestic scooters/export 2Ws at 15%/24%/25% vs. 8%/15%/11% in FY13); moreover, this has been achieved while consistently gaining revenue/EBITDA share vs. peers on improving brand franchise and operating leverage.

Fast emerging as the E-2W market leader

TVSL has been a proactive incumbent w.r.t. electrification with efforts spanning i) products (several launches over the coming quarters apart from iQube ramp-up), ii) investments (EV-specific capex of Rs10bn apart from stakes in Ultraviolette and Swiss e-Mobility), and iii) partnerships (BMW, Swiggy and Rapido). Despite the recent reduction in FAME-II subsidy support, TVSL’s retail volumes are back to earlier peak levels of ~16K units/m – barely ~2K behind Ola. In terms of revenue, TVSL is already a market leader in E-2Ws. It claims EVs are already contribution-margin positive. ‘Rightsizing’ cost structures along with volume ramp-up would scale up profitability further.

Maintain BUY (top pick in autos) with a 32% upside

We have built a 15%/36% FY23-26E volume/EPS CAGR (accelerating 2W industry growth, improving competitive positioning across ICE and EVs, and margin triggers), and maintain BUY with a revised TP of Rs2,100 (unchanged 25x PER multiple rolled over to FY26E + Rs130 for the captive financing arm – refer report).

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