TVS reported Q3FY18 EbITDA of Rs 2.9 bn (+31% y-o-y), which was 8% above our estimates due to higher-than-expected realisations. Ebitda margin came in at 7.8% (KIE 7.5%) led by the company’s cost-reduction efforts and a better product mix. The company expects to achieve double-digit Ebitda margin in Q4FY18, which appears difficult due to rise in commodity prices and increase in marketing expenditure. Maintain Sell on expensive valuations; target price revised to Rs 410 (from Rs 400) on rollover to March 2020e. Q3 Ebitda 8% above estimates TVS Motor reported Q3FY18 Ebitda of Rs 2.9 bn (+31% y-o-y), which was 8% above our estimates due to higher-than-expected realisations. Revenues increased by 23.5% y-o-y (KIE 18% y-o-y) led by 15% y-o-y volume growth and 7.4% y-o-y increase in net realisations. Volume growth was driven by – (i) domestic volume growth of 11% y-o-y led by 24% y-o-y growth in scooters even though moped volumes declined y-o-y and (ii) export volume growth of 42% y-o-y. ASPs surprised positively with 4.4% increase on q-o-q basis driven by (i) 1.8-2% due to higher share of exports to BMW (1% of volumes in Q3FY18 versus 0.7% in Q2FY18), (ii) 0.6-1% due to price increases taken by the company and (iii) the rest due to higher spare revenues and better variant mix in Jupiter. Ebitda margin came in at 7.8% (+50 bps y-o-y), which was marginally ahead of our estimates. Gross margin was 50 bps ahead of our estimates (up 70 bps q-o-q) but this was partly offset by higher other expenses. Other expenses increased by 20% y-o-y, which was 11% above our estimates due to increase in marketing expenditure. TVS reported PAT of Rs 1.54 bn (+16% y-o-y), which was 2% below our estimates due to lower-than-expected other income.
Market share of TVS in the domestic two-wheeler industry was 14.3% in 9MFY18; flat on y-o-y basis. While the company has gained 200 bps market share in the scooter segment in 9MFY18, this has been offset by (i) marginal decline in market share in the motorcycle segment as Victor has failed to gain share from Hero in the executive segment and (ii) decline in moped volumes. Going ahead, we expect TVS’ domestic two-wheeler volumes to grow at 8% over FY2018-20E, which is in line with our two-wheeler industry growth estimates. Fine-tune earnings estimates Our FY2018-20e Ebitda estimates for the company remain largely unchanged but we have cut our EPS estimates by 3-5% due to lower other income assumptions. We maintain our Sell rating on the stock with a revised SoTP-based target price of Rs 410 (from Rs 400 earlier); the increase in target price is due to rollover to March 2020e from September 2019e earlier.