PL Stock Report: TVS Motor Company (TVSL IN) - Q2FY24 Result Update – In line performance; EV ramp-up to continue - Accumulate

TVS Motor Company (TVSL IN) - Himanshu Singh - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: ACCUMULATE | CMP: Rs1,609 | TP: Rs1,650

Q2FY24 Result Update – In line performance; EV ramp-up to continue

Quick Pointers:

♦ Domestic realization flattish; exports ASP lower despite higher 3W mix.

♦ TVS outperforms in the festive period; inventory to normalize at four weeks.

We change our FY25/FY26E EPS estimates by 1%/6% to incorporate improvement in margins, as impact from higher EV mix will get offset by PLI and scale benefits. TVS Motor’s (TVSL) 2QFY24 performance was largely in-line with inventorisation and cost control helping offset impact from poor mix (EV volumes +49% QoQ). The company sharply ramped-up its EV volumes besides gained market share and now plans to launch multiple products in domestic market and also export EVs globally. Urban demand was strong for the industry which should continue, while rural demand is expected to recover. EBITDA margins benefited from inventorisation and expanded c50bp QoQ to 11%, despite higher share of EVs. We expect margins to remain below current levels in 2HFY24E as inventorisation benefit reverses and company continues investing in advertising.

We believe TVS is well placed to outperform the industry given (1) good tractions for new product launches in ICE & EV segments (2) higher focus on exports & premiumisation and (3) margin improvement helped by cost control, (4) operating leverage, (5) benign input prices and (6) PLI benefits to likely offset impact from higher EV mix. Retain ‘ACCUMULATE’ with TP of Rs1,650 (earlier TP at Rs. 1,560) at 27x Sep-25E EPS incl. Rs66 for TVS credit (earlier Rs. 35).

♦ 2QFY24 – Revenue in-line; other expenses see a rise: TVSL’s revenue grew by 12.8% YoY, and came largely in line vs PLe and Bloomberg consensus estimates (BBGe). EBITDA margins at 11.0% were largely in-line with PLe and BBGe (11.2%). Other operating expenses were higher than expected. Higher other income aided PAT beat.

♦ Key takeaways: (1) TVSL anticipates better growth in rural areas with urban areas already performing well. During the Dussehra season TVSL saw growth ahead of the industry and expect the same in Diwali season too. Company has maintained inventory of 25 to 30 days. (2) On exports side, TVSL noted improvement in customer retail in international market, which will help increase exports volume. TVSL is poised to expand its global presence with TVS X. (3) Electric Vehicles: iQube’s volumes grew ~263% YoY to 58k units and healthy booking levels continue. TVSL ramped up its production to 25k units per month and expanded EV touchpoints to 337 by end of Q2. (4) TVSL did not take any price hikes from October and does not expect input cost increase for 2HFY24, as material cost may soften slightly. (5) On margins, TVSL saw increase in other operating expenses due to higher focus on marketing (Global launch of RR310 and TVS X) and advertisements, but is not participating in discounting. (6) Capex for FY24 is expected to be at Rs. 8-9bn of which Rs 6.2bn was spent in 1HFY24. Majority capex will be used in EV segment. (7) New Launches: TVSL plans to launch new electric products ranging from 5kW to 25kW within a year; also launched Raider Super Squad edition and Jupiter 125 with SmartXonnect technology to keep up the momentum gained by these models and enhance TVSLs market share. (8) TVSL 3W market de-grew by 14% YoY but it is confident of recovery. TVSL sees e-3W being successful in domestic and international markets.

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