Emkay Global Sees Upside Potential in TVS Motor, Targets Rs 4800

TVS Motor Logs Strong Q4, Eyes Growth Amid Industry Challenges

TVS Motor Company (TVSL) has reported a strong fourth quarter (Q4) with revenue increasing by 34% year-over-year (YoY), driven by 28% YoY volume growth and a 1.5% quarter-over-quarter (QoQ) increase in average selling price (ASP). The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) rose by 26% YoY, while earnings before interest, taxes, depreciation, amortization, and management (EBITDAM) remained stable QoQ at 13.1%.

The domestic two-wheeler (2W) industry is expected to witness strong single-digit growth, aided by robust underlying demand. TVSL aims to outpace this growth through its diversified product portfolio, which includes ICE/EV scooters and premium motorcycles, as well as capacity expansion. The company plans to increase its production capacity by 1.5 million units per annum (mnpa) in FY27 to 8.3 mnpa units, with further expansion plans in FY28 and FY29 under evaluation.

However, the economy 2W segment is facing challenges due to rising product prices and elevated fuel price fears. TVSL's exposure to this segment is limited, accounting for 5% of its 2W and 4% of its total volumes. In contrast, electric 2Ws (E2Ws) and electric 3Ws (E-3Ws) are growing strongly, with momentum expected to sustain in FY27. TVSL aims to gain market share in these segments through its strong multi-variant E-2W portfolio and recent product launches in E-3Ws.

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The company is also expected to face commodity cost pressure, which will persist in the near term. However, TVSL's improving product mix, strong scale benefits, and calibrated price hikes (which have offset 35% of the 3-5% commodity cost impact so far) should help counter this pressure and improve margins. Logistics have been a challenge, but export demand remains robust across markets in Africa, Latin America, and Asia, with TVSL gaining market share due to its strong product portfolio.

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Outlook

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We continue to recommend TVS Motor on a structural basis, due to its premiumization-led growth, strong margin footprint, and its status as a key beneficiary of India's EV transition. We retain a BUY rating and a target price of Rs4,800, based on a 35x FY28E core price-to-earnings ratio (PER).