TVSL result – Healthy exports new margin territory strengthen positive view


TVS Motor (TVSL) has delivered strong performance in 4QFY22 on EBITDA margin front with EBIDTA margin of 10.1% in one of the most challenging times. Revenue grew by 4% YoY (down 3% QoQ) to Rs55.3bn, 1.9% below our estimate of Rs56.4bn. ASP rose by 13% YoY (down 1% QoQ) to Rs64,572, supported by better product mix, price hike and healthy exports with favorable exchange rate. Its EBITDA margin remained flat on YoY basis (up 11bps QoQ) to 10.1% vs. our estimate of 10.3%, mainly due to negative operating leverage and higher commodity cost. TVSL PAT came in at Rs2.7bn (up 4% YoY/ down 2% QoQ), below our estimate of Rs2.9bn. We believe that the better product-mix and rising export contribution, coupled with a favourable exchange rate would support TVSL’s margin expansion, going forward. In view of the strong products basket, improving brand equity, healthy export potential, increasing margin territory and improving return ratio, we reiterate our BUY recommendation on the stock and maintain the Target Price at Rs921. 

Focus on EV and Double-digit EBITDA Margin Territory augur Well 

Though we expect the domestic 2W industry to face a near-term demand weakness, we believe TVSL’s outperformance will continue on the volume front, while its rising exports at a better exchange rate would help on the margin front. Better product-mix, pricing power and increasing exports would support its double-digit margins. We expect its EBITDA margin to expand further and record 10.9% in FY24E. Looking ahead, TVSL expects to sustain the higher volume and margin owing to the success of new products and improving brand equity. Moreover, its recent increasing focus on EV segment through new launches as well as strategic tie-ups globally would take it to a new scale on the EV platform. Barring near term supply constraint company expects sequential improvement in volumes in coming months. Moreover, it plans to increase its EV capacity from current 2.5K to 10K per month by Jun’22-end. It plans to launch few more new products on EV platform in FY23. Establishing new EV platform for future products opens a huge potential for the next decade for the company.  

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Outlook & Valuation 

We expect TVSL’s domestic volume to witness a growth of 21% in FY23E. We estimate a healthy 12% CAGR for export over FY22-FY24E, on the back of strong sales in African markets, which would drive TVSL’s revenue. Though lower production amid semi-conductor supply issue would impact volumes over near term, higher export contribution and regular price hikes would benefit the company. Hence, we slightly increase our revenue/EBITDA/PAT estimates by +2%/+1%/+2% for FY23E and broadly maintain it for FY24E. In view of the higher exports and healthy margin profile, we reiterate our BUY recommendation on TVSL and maintain the Target Price of Rs921, valuing the core business at an unrevised P/E multiple of 23x to Rs871 and adding Rs50 for the subsidiary, valuing it at 2x P/B.