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In-line results; positives appear priced-in

Industry growth of 7-8% YoY expected in 3QFY25

* TVS Motor (TVSL) posted an in-line result, with margin at 11.7% (est. 11.1%) despite an adverse mix. On the back of better monsoons and higher reservoir levels, domestic 2W rural demand has been ahead of urban demand in 1HFY25, which is anticipated to sustain in FY25. However, the export outlook continues to be uncertain due to weak demand in Africa.

* Management expects the 2W industry to post 7-8% YoY growth in 3QFY25, which is lower than earlier envisaged. At ~48x/38x FY25E/FY26E EPS, we believe most of the positives are in the price. We maintain our FY25E/26E EPS estimates. Reiterate Neutral with a TP of ~INR2,610 (based on ~32x Sep’26E EPS and INR210/sh for the NBFC).

Launch of lower-priced iQube dents ASP

* TVSL’s revenue/EBITDA/adj. PAT grew 13%/20%/23.5% YoY in 2QFY25 to INR92.3b/INR10.8b/INR6.6b (in line). 1HFY25 revenue/EBITDA/adj. PAT grew 15%/23%/23.5% YoY. Revenue/EBITDA/adj. PAT is expected to grow 12%/15%/21% YoY in 2HFY25.

* Revenue growth was led by ~14% YoY growth in volumes, but ASPs declined 1% YoY to INR75.1k (est. INR77.8k). ASP decline was mainly due to the launch of the lower-priced iQube variant in 2Q.

* Gross margin improved 250bp YoY (-10bp QoQ) and stood at 28.5% (est. 27.8%).

* Despite the adverse mix, EBITDA margin came in at 11.7% (+70bp YoY; est. 11.1%). EBITDA grew 20% YoY to INR10.8b (just 2% above our est. of INR10.6b). TVSL has not yet booked the PLI benefits in 1HFY25, although it is eligible for the same.

* Further, due to higher-than-estimated other income, adj. PAT came in at INR6.6b (est. INR6.5b); it grew 23.5% YoY. Higher other income included INR234.8m of fair valuation of investments.

* FCF stood at INR14.85b in 1HFY25 (vs. INR10.6b in 1HFY24), mainly due to better operating cash flow of INR23.1b (vs. INR16b in 1HFY24), despite a higher capex of INR8.3b (vs. INR5.4b in 1HFY24).

Key takeaways from the management interaction

* The domestic 2W industry has grown 11% YoY during Navratras (4% YoY growth seen to date in 3QFY25), with TVSL outperforming the industry. The overall industry is expected to see 7-8% YoY growth in 3QFY25.

* Exports: The ongoing Red Sea crisis continued to hurt the export transit time and timely availability of containers. However, TVSL has seen a pick-up in retails, which is higher than the industry.

* Capex and investments: The company has guided a capex of INR12-14b for FY25 (v/s earlier guidance of INR10-11b) and investments of INR15b.

Valuation and view

* The recently launched Jupiter 110 has been very well received by customers and is likely to help TVSL gain share in scooters in the coming quarters. However, in motorcycles, for the first time in many years, TVSL has underperformed the industry in H1. More importantly, TVSL has underperformed in the 125cc segment, which has been its key growth driver in recent years. Further, the export outlook, especially in Africa, remains weak.

* Given these factors, we believe TVSL at 48x/38x FY25E/FY26E EPS appears fairly valued. Reiterate Neutral with a TP of ~INR2,610 (premised on ~32x Sep’26E EPS + INR210/share for NBFC).

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