TVS Q2FY22 profit increased by 41.5% YoY to Rs 2.8 billion which is in line with our estimates. The Company reported double digit EBITDA margins twice in last three quarters which is quite commendable.  Management commentary about growth prospects in the domestic 2W market was encouraging.  However aggressive plans in the EV segment with new launches and new initiatives in export markets were impressive. "To factor in current slackness in the business environment, we have reduced our volume and PAT estimates by 0.9% and 6.8% for FY23," stated IDBI Capital Equity Research.

"We believe, TVS is likely to grow ahead of industry in its domestic and its international business based on the strength and popularity of its four marque brands (Jupiter, Ntorq, Apache and Radeon). We rate the stock as BUY with revised price target of Rs 674 (PER of 20xFY24E earnings + Rs 42 for TVS Credit Services)," the broking firm said.

Key highlights and investment rationale

Double Digit EBITDA Margin: During Q2FY22, TVS’s Sales increased by 22% YoY to Rs 56.2 billion (our estimates Rs 54.2 billion). Increase in sales is attributed to 5.6% and 15.5% increase in volumes and average realizations respectively. The Company reported double digit EBITDA margins twice in three quarters which is quite commendable given the intense cost pressure. The improvement in EBITDA margin was aided by gross margin expansion and lower other expenses.

Business Outlook and Earning Revision: Going forward, we believe, TVS is likely to outperform the industry growth on account of a) Preference towards personal mobility trend and decent monsoon fueling 2W demand in urban and rural areas  b) Strength of its four marquee brands (Jupiter, Ntorq Apache and Radeon) and c) Aggressive initiatives on EV side with the success of iQube . However, to factor in near term slackness in the business outlook and higher depreciation charges, we have reduced our volume and PAT estimates by 0.9% and 6.8% for FY23 respectively and also introduced FY24 estimates.

BUY: We expect TVS to report 12.1% volume CAGR and 34.1% PAT CAGR over FY21-24E. We rate the stock as BUY with revised price target of Rs 674 (PER of 20xFY24E earnings + Rs 42 for TVS Credit Services).

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