EV Launch And India Operations Will Transform Business By 2025

Key Takeaways

• Expansion into the EV segment and new product launches aim to diversify revenue streams and positively impact growth.
  
• Establishing regional manufacturing and enhancing product development may improve margins, delivery efficiency, and foster innovative offerings.
  
• Flat revenue growth, declining returns, and high operational costs stress earnings, with ongoing losses in bicycle segment and external market uncertainties posing risks to growth.

Catalysts

Engages in the manufacture and sale of precision engineered and metal formed products to automotive, railway, construction, agriculture, etc.

• Tube Investments of India is expanding its EV segment, focusing on seeding its new small commercial and cargo vehicle variants in Q4 of FY25, aiming for full commercial sales starting in April 2025. This product diversification is likely to impact revenue growth positively.
  
• The company is investing in its China Tech Center to enhance its product development, which could lead to innovative offerings and potentially boost revenue and margins in the future.
  
• Tube Investments plans to establish regional manufacturing presence in India, reducing logistics costs and improving delivery times to customers, which may enhance net margins.
  
• Despite recent challenges, the company plans to use the current market conditions to focus on long-term strategic growth, such as leveraging India’s domestic consumption base and exploring export markets. This strategic focus on growth could impact future revenue and market share.
  
• Tube Investments is focusing on achieving operational breakeven for its EV business in FY26, which would reduce losses and potentially improve overall earnings.

Tube Investments of India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tube Investments of India's revenue will decrease by 18.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.5% today to 10.8% in 3 years time.
• Analysts expect earnings to reach ₹10.9 billion (and earnings per share of ₹56.22) by about April 2028, up from ₹8.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 93.6x on those 2028 earnings, up from 59.5x today. This future PE is greater than the current PE for the IN Auto Components industry at 26.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.71%, as per the Simply Wall St company report.

Tube Investments of India Future Earnings Per Share Growth

Risks

• The quarter's performance showed flat revenue growth and a declining return on invested capital (ROIC), which may signal stagnation in growth and efficiency, impacting future earnings.
  
• The engineering and metal formed businesses reported either flat or declining revenues with modest profit increases, reflecting potential struggles in maintaining market share or pricing power that could affect net margins.
  
• The bicycle business continues to operate at a loss, highlighting ongoing challenges in this segment that may exert pressure on consolidated profits and contribute to lower overall margins.
  
• Increased operational costs and new investments such as the China Tech Center and product development expenses, combined with high depreciation from recent capital expenditures, could stress earnings if not offset by sufficient revenue growth.
  
• Uncertainty regarding external factors such as domestic market conditions, export volatility, and global economic climate might pose risks to revenue growth, particularly for dependency on exports for the engineering division.

Valuation

• The analysts have a consensus price target of ₹3586.5 for Tube Investments of India based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹4516.0, and the most bearish reporting a price target of just ₹3032.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹100.2 billion, earnings will come to ₹10.9 billion, and it would be trading on a PE ratio of 93.6x, assuming you use a discount rate of 13.7%.
• Given the current share price of ₹2500.05, the analyst price target of ₹3586.5 is 30.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.