Q4FY23 Review: Tube Investments: Inline Q4; traction of EV sales to be watched

TI reported inline standalone performance with 21% YoY Ebitda growth in Q4 even with sluggish exports and minimal contribution from railways. Uptick in both would be trigger in near term. Sale of EV 3W and trucks has commenced in Q1 and traction for both would be key even as breakeven takes a couple of years. In terms of new ventures, focus is on execution of plans in CDMO and medical devices businesses even as evaluation of new forays continues.

Standalone business on track; export & railways key to uptick: 

Standalone Q4 Ebitda at Rs2.1bn grew 21% YoY aided by high single digit volume growth. 4% YoY revenue decline in Q4 was a result of pass through of RM price reduction. Export trajectory was sluggish in Q4 for both engineering products and industrial chains. Incrementally even as domestic auto volume growth remains key, uptick would be driven by revival of export growth led by new products launch and customer addition, commencement of railway supplies (H2FY24) and sustained demand for large dia tubes for off road applications.

EV sales commence in Q1; traction to be watched: 

Management indicated that sale of EV three wheelers has commenced in South India and production is ramping up at the 90k unit facility. Sale of 55T EV trucks has also commenced from the 2500 units Manesar plant. Tractor launch would likely happen by end FY24. Traction for EV 3W and trucks would be closely watched. Management remains confident on the unit economics without any reliance on FAME subsidies. It did not disclose the valuation range for the recent fund raise at TICMPL.

Focus on execution of new ventures: 

Near term focus for management is execution of the planned CDMO Greenfield plant (Rs3bn commitment) and completion of purchase of Lotus Surgical followed by scaling up of operations Rs2.32bn commitment). Further planned capex includes Rs2.8bn in standalone for new product development and Rs3bn at TICMPL for product development and launch. Evaluation of new forays continues but would be opportunistic and subject to limiting debt to 2x standalone FCF.

Analysts of IIFL Capital Services maintain estimates and ADD rating with TP of Rs2702.

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