Key Takeaways
- TVS Motor posted Q3 FY26 PAT of INR 9.7 bn, matching consensus and beating earnings expectations.
- EBITDA margin jumped 120 basis points YoY to 13.1%, outpacing the 12.9% estimate.
- Motilal Oswal projects 21%/26%/29% CAGR for revenue/EBITDA/PAT through FY28, implying a 36× Dec‑27 EPS multiple (₹4,461 target).
- Two‑wheeler sector margins are tightening overall, but TVS’s market‑share gains and cost‑discipline give it a relative edge.
- Bull case: sustained margin expansion and export upside drive a 40%+ upside to current price; Bear case: slower demand recovery or raw‑material cost spikes could compress valuations.
You’re probably overlooking TVS Motor’s hidden earnings engine.
TVS Motor’s Q3 FY26 Profit Surge and What It Signals
TVS Motor Company reported a profit after tax (PAT) of INR 9.7 bn for the third quarter of FY26, essentially on target with the analyst consensus of INR 10 bn. More striking was the EBITDA margin, which climbed 120 basis points year‑over‑year to 13.1%—a modest but decisive improvement over the 12.9% forecast. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is a key proxy for operating cash generation, and a rise in margin signals that the company is either extracting better pricing power, reducing costs, or both.
Motilal Oswal’s valuation model assumes a 36× forward EPS multiple for December 2027, translating to a target price of INR 4,461. At a current market price near INR 3,200, that implies roughly a 40% upside, provided the growth assumptions hold.
Margin Expansion in the Two‑Wheeler Sector: A Broader Trend
The Indian two‑wheeler market, worth over INR 2 trillion annually, has been under pressure from rising raw‑material costs and a modest dip in discretionary spending post‑pandemic. Yet, the sector is seeing a selective margin recovery as manufacturers streamline supply chains and shift to higher‑margin premium models. TVS’s 13.1% EBITDA margin now sits above the industry average of roughly 11.5%.
Key drivers of this sector‑wide improvement include:
- Increased localisation of components, reducing import‑related currency risk.
- Higher average selling price (ASP) from premium scooters such as the TVS Ntorq and Apache RR310.
- Cost‑optimisation initiatives like lean‑manufacturing and AI‑driven demand forecasting.
TVS’s ability to capture a larger slice of these gains positions it as a relative outperformer.
Competitive Landscape: How Hero, Bajaj Auto and Others React
TVS is not operating in a vacuum. Its biggest domestic rivals—Hero MotoCorp, Bajaj Auto and the emerging player Mahindra Two‑Wheels—are all racing to improve margins.
Hero MotoCorp, the market leader, posted a flat EBITDA margin of 11.2% in the same quarter, constrained by aggressive price cuts to defend volume. Bajaj Auto, known for its premium commuter bikes, reported a 12.8% margin, slightly below TVS, but its export exposure to Latin America is growing faster, potentially offsetting domestic softness.
What sets TVS apart is its balanced mix of domestic volume and export growth, especially in the African and Southeast Asian markets where the company has launched new 125 cc and 150 cc models. This diversification reduces reliance on the domestic slowdown and adds a cushion to earnings.
Historical Earnings Patterns: Lessons from Past Cycles
Looking back at the FY22‑FY24 cycle, TVS delivered a compound annual growth rate (CAGR) of roughly 19% in revenue and 22% in PAT, outperforming the two‑wheeler index by about 3 percentage points each year. The last time TVS’s EBITDA margin breached the 13% threshold was in FY21, driven by a temporary surge in export orders. The subsequent year saw margin contraction as raw‑material costs surged.
The pattern suggests that TVS can sustain higher margins when export demand is strong and when it can lock in favourable supplier contracts. The current macro‑environment—moderate global commodity price easing and a stable rupee—creates a favourable backdrop for repeating that upside.
Technical & Fundamental Nuggets: Decoding EBITDA, PAT and Valuation Multiples
EBITDA measures operating profitability before capital‑intensive items; investors watch its margin to gauge core efficiency. A 120‑bp uplift, while seemingly small, translates to roughly INR 1.4 bn of additional operating cash in TVS’s scale.
PAT (Profit After Tax) reflects the bottom‑line after all expenses and taxes. Consistency around the INR 10 bn mark signals earnings stability, a key factor for premium‑multiple valuations.
Valuation Multiple—Motilal Oswal uses a 36× forward EPS multiple, notably higher than the sector average of 25×‑30×. This premium is justified only if TVS sustains its projected growth rates of 21% revenue, 26% EBITDA and 29% PAT CAGR through FY28.
Investor Playbook: Bull vs Bear Cases for TVS Motor
Bull Case
- Margin expansion continues, pushing EBITDA margin above 14% by FY27.
- Export sales to Africa and Latin America grow at 20% CAGR, adding INR 2 bn annual revenue.
- New premium models capture additional market share, lifting ASP by 5%.
- Result: Stock trades near the target of INR 4,461, delivering >40% upside.
Bear Case
- Raw‑material cost volatility erodes margin, pulling EBITDA back below 12%.
- Domestic demand slows more than expected, leading to inventory build‑up.
- Competitors launch aggressive pricing campaigns, stealing market share.
- Result: Valuation compresses to 25× EPS, price falls to ~INR 2,800, erasing much of the upside.
Bottom line: TVS Motor sits at a pivotal inflection point. The company’s recent earnings beat, expanding margins, and strategic export push give it a credible pathway to out‑perform the two‑wheeler sector. However, investors should monitor raw‑material pricing and domestic demand trends closely before committing capital.