New EV Models And Dealer Expansion Will Boost Market Position

Key Takeaways

• Expanding the dealer network and introducing new electric vehicles could drive significant revenue growth and market positioning.
  
• Expected export growth and non-recurring expenses in the Engineering division could improve margins and boost earnings.
  
• Challenges in cost management, competitive pressure, and market constraints may impact Tube Investments' profitability, growth, and overall financial health.

Catalysts

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

• The company expects better performance in the second half of the year, particularly in margins, due to one-time operational expenses in the first half that will not recur. This can lead to improved earnings in the near term.
  
• The Clean Mobility business is expanding its dealer network for electric 3-wheelers, with a target to grow from 83 to 150 dealers by the end of the year, which could drive revenue growth.
  
• The Engineering division is experiencing high double-digit growth in exports and gaining market share in the 2-wheeler segment, potentially boosting revenue and margins if export recovery continues.
  
• Electric 3-wheeler volume growth is expected to continue outside its strong Southern market position, with plans to replicate success in North, East, and West regions, which could significantly enhance revenue.
  
• The introduction of new electric vehicle models, including a cargo 3-wheeler and small commercial vehicles, is anticipated in the upcoming months, which may drive top-line growth and enhance market position.

Tube Investments of India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tube Investments of India's revenue will decrease by -16.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.4% today to 11.5% in 3 years time.
• Analysts expect earnings to reach ₹11.9 billion (and earnings per share of ₹61.75) by about December 2027, up from ₹6.0 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 104.5x on those 2027 earnings, down from 118.3x today. This future PE is greater than the current PE for the IN Auto Components industry at 19.8x.
• 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 13.76%, as per the Simply Wall St company report.

Tube Investments of India Future Earnings Per Share Growth

Risks

• The decline in margins due to one-time operational expenses and issues in the railway business could signal ongoing cost management challenges, potentially impacting profitability and net margins.
  
• The competitive pressure from established players such as Bajaj and Mahindra in the electric 3-wheeler segment may impact Tube Investments’ market share and revenue growth in the clean mobility business.
  
• The muted growth in key segments like Engineering and Metal Formed Products, despite industry growth, suggests potential market constraints or operational challenges that could restrict revenue growth.
  
• The drop in the return on invested capital (ROIC) from 67% in the previous year to 45% now could indicate inefficiencies or challenges in generating returns from investments, potentially affecting overall financial health.
  
• The exposure to European markets, which are showing signs of softening, could affect export revenues and overall financial performance, particularly given the reliance on global diversification strategies.

Valuation

• The analysts have a consensus price target of ₹4390.17 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 ₹4762.0, and the most bearish reporting a price target of just ₹3600.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹103.7 billion, earnings will come to ₹11.9 billion, and it would be trading on a PE ratio of 104.5x, assuming you use a discount rate of 13.8%.
• Given the current share price of ₹3680.2, the analyst's price target of ₹4390.17 is 16.2% 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.