On a fast track – raise to BUY
ICE 2W volume growth beats industry at 33% YoY, supporting 26% revenue growth in Q3
Volume uptick bolstered EBITDA margin by 115bps YoY to 11.2%; gross margin also healthy at 26% (+180bps)
Upgrade to BUY with new TP of Rs 2,242 (vs. Rs 1,531) as we raise FY24/ FY25 EPS 7% and increase our target P/E to 28x (vs. 26x)
Revenue growth driven purely by volume uptick…: TVSL’s Q3FY24 revenue grew 26% YoY (flat QoQ) to Rs 82.4bn backed by volume growth of 25% YoY (flat QoQ) to ~1.1mn units. Net realisation per vehicle (NRPV) remained flat YoY/QoQ at Rs 74.9k. TVSL’s domestic ICE 2W volumes grew 33% YoY to ~800k units, beating the industry growth rate.
…leading to healthy EBITDA and margin gains: Raw material cost as a percentage of sales dropped 180bps YoY to 73.7% in Q3 (flat QoQ). EBITDA increased 40% YoY (+3% QoQ) to Rs 9.2bn and the margin improved 115bps (flat QoQ) to 11.2%. Adj. PAT climbed 68% YoY (+11% QoQ) to Rs 5.9bn with a 7.2% net margin, aided by other income which included gains of ~Rs 823mn from capital reduction of the subsidiary.
Steady revival in export demand: 2W export sales grew 4% YoY (-10% QoQ) to ~216k units, above the industry. TVSL anticipates a pickup in the Middle East, LATAM and ASEAN markets as well as Sri Lanka which has opened up for exports in Q3FY24. Recovery in African markets may take longer than estimated.
Estimates revised: We believe TVSL will continue to beat industry volume growth backed by a strong presence in the high-end motorcycle segment, together with its focus on EV launches and the revival in exports. This apart, easing raw material costs and the company’s premium focus will add to margins. We raise our FY24/FY25 earnings estimates by 5%/7% to factor in the above and introduce FY26 projections, baking in a 3Y EBITDA/PAT CAGR of 28%/35%.
TP raised; upgrade to BUY: To factor in the strong outlook for high-end products such as Apache and Raider, launch plans, and benefits from investments in export markets over the medium term, we revise our target P/E multiple for the core business to 28x from 26x, in line with the stock’s long-term average. On rolling valuations over to FY26E, we arrive at a new SOTP-based TP of Rs 2,239 (earlier Rs 1,531), which includes Rs 33/sh for TVS Credit and offers 16% upside potential – upgrade to BUY from HOLD. Slow recovery in export markets remains a key risk.
Click here to download TVS Motor – Q3FY24 Result Review 27Jan24 by BOB Caps Research
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