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Operationally in line; MTM loss drives PAT miss

FY25 likely to be an exciting launch year for TVSL

* TVS Motor (TVSL) posted an operationally in-line performance in 4QFY24. It was yet another quarter, where TVSL recorded the highest-ever EBITDA margin of 11.3% (est. 11.2%). We believe TVSL is well placed to outperform the 2W industry, led by new product launches.

* However, we believe strong earnings growth, driven by recovery in underlying segments and margin improvement, is fairly captured in the current valuations at ~36x/31x FY25E/FY26E EPS. We retain our FY25E/FY26E EPS. Reiterate Neutral with a TP of ~INR1,930 based on ~27x Mar’26E EPS and INR171/sh for NBFC. EVs are contribution margin positive

* TVSL’s revenue/EBITDA/adj. PAT grew 24%/36%/33% YoY in 4QFY24 to INR81.7b (in line)/INR9.3b/INR4.85b (est. INR5.2b). FY24 revenues/EBITDA/adj. PAT grew 20.5%/31%/44% YoY.

* Revenue growth was driven by ~22% YoY growth in volumes. ASP remained flat at INR76.9k per unit (in line).

* Gross margin expanded 260bp YoY to 27.2% (est. 26.4%), driven by stable RM costs. Further, despite high other expenses (+160bp YoY/+60bp QoQ as a % of sales) EBITDA margin expanded 100bp YoY to 11.3%. EBITDA grew ~36% YoY to INR9.3b (in line).

* Other income turned into a loss of INR287m as it included a fair valuation loss of INR470m in investments held by the company. As a result PAT stood at INR4.85b (est.INR5.2b)

* FCFF stood at INR25.6b (vs. INR10b in FY23) mainly due to better operating cash flow of INR36.2b (vs. INR19.9b in FY23). Capex for FY24 stood at INR10.5b (vs. INR10b in FY23).

* The board declared a final dividend of INR8/share for FY24 (vs. INR5/share in FY23). Key takeaways from the management interaction

* The management has indicated that FY25 is likely to be an exciting year for new launches for TVSL. In EVs, it plan to launch multiple variants of iQube with various battery options to suit consumer needs. It also plans to launch other EV models, including its much awaited 3W EV.

* Key export market of Africa is expected to recover in 2HFY25.

* Capex guidance for FY25 stands at INR10b in ICE + EVs. Investment outflow in subsidiaries and associates from TVSL for FY25 is expected to be INR11- 12b (TVS CS at INR4b, Norton INR4b and the balance in others).

Valuation and view

* Volume growth is likely to be driven by a recovery in the domestic 2W market, healthy demand for its products (Raider, 125CC scooters and iQube) and new product launches. We expect TVSL to continue to work on improving its profitability and factor in 90bp expansion in EBITDA margin over FY24-26E.

* Valuations at 36x/31x FY25E/FY26E EPS largely reflect its strong earnings growth potential. Reiterate Neutral with a TP of ~INR1,930 (premised on ~27x Mar’26E EPS + INR171/share for NBFC).

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