Neutral TVS Motor Company Ltd for the Target Rs.2,839 by Motilal Oswal Financial Services Ltd
Margins continue to expand
TVS outperforms industry in both domestic and exports in 1Q
* TVS Motor Company’s (TVS) 1Q PAT at INR7.8b was ahead of our estimate of INR7.4b, led by better-than-expected margins at 12.5%. Management is confident of sustaining its export momentum and is hopeful of a revival in domestic demand, led by improved rural sentiments and the upcoming festive season.
* Post the recent stock rally, we believe TVS at 41.7x/35.2x FY26E/FY27E EPS appears fairly valued. Reiterate Neutral with a TP of ~INR2,839 (based on ~32x June’27E EPS and INR220/sh for the NBFC).
Strong operational performance
* TVSL’s standalone revenue/EBITDA/adj. PAT grew ~20%/32%/35% YoY in 1QFY26 to INR100.8b/~INR12.6b/INR7.8b (est. INR100.3b/12b/7.4b).
* Revenue growth of ~20% YoY was largely driven by strong volume growth (+17.5% YoY, the highest-ever quarterly unit sales). ASP was up 2.5% YoY at INR78.9k/unit, with limited pricing action.
* Gross margins largely remained stable YoY at 28.8% (est. 28.4%). RM costs were largely flat QoQ with minimal price increase.
* Other expenses were lower 90bp YoY.
* Consequently, EBITDA margin expanded 100bp YoY to 12.5% (estimate 12%). Adjusted for PLI accrual for Q1FY25, margins would have been up 50bp YoY.
* This has resulted in ~32% YoY growth in EBITDA at INR12.6b (in line with estimates).
* Adj. PAT came in at INR7.8b (+35% YoY, beating estimates of INR7.4b).
Key takeaways from the management interaction
* Domestic: Management remains optimistic that domestic market growth momentum will continue in FY26. 1QFY26 witnessed retail growth of ~9% YoY, with rural markets slightly outperforming at ~10% YoY, supported by healthy reservoir levels, improving agricultural outlook, and continued infrastructure investments. 2W domestic ICE segment grew ~8% YoY.
* Exports: Africa showed strong recovery, led by HLX 125 Five Gear and entry into Morocco which is expected to drive further growth. LATAM maintains consistent MoM growth; Nepal and Sri Lanka are performing well in Asia. Bangladesh remains challenged but a gradual recovery is expected. The Middle East is stable with sustained performance.
* Capex: Capex is expected to remain in the range of INR1.6b-1.7b, with investments in new products. TVS will continue to invest about INR20b in subsidiaries and associates.
* Management has iterated that it has sufficient stock of rare earth magnets to meet short-term demand.
Valuation and view
* The recently launched Jupiter 110 has been well-received by customers and is likely to help TVS gain a share in scooters in the coming quarters. However, in motorcycles, for the first time in many years, TVS has underperformed the industry in FY25. More importantly, the company has underperformed in the 125cc segment, which has been its key growth driver in recent years. Further, post the recent stock rally, we believe TVS at 41.7x/35.2x FY26E/FY27E EPS appears fairly valued. Reiterate Neutral with a TP of ~INR2,839 (based on ~32x June’27E EPS and INR220/sh for the NBFC).
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
