The net profit after a tax provision of Rs 7.07 crore (Rs 6.96 crore) is Rs 21.21 crore against Rs 19.26 crore in the first quarter of 1998-99.

Sales for the period was Rs 365.04 crore compared with Rs 274.42 crore in the first quarter of 1998-99. During the period, the company sold 1.93 lakh units (1.54 lakh units in first quarter of 1998-99).

Profit at operating level was Rs 44.25 (Rs 36.42 crore) and the margins declined from 13.27 per cent to 12 per cent. Interest cost was Rs 6.92 crore (Rs 4.90 crore) and depreciation Rs 9.05 crore (Rs 5.30 crore). Both these costs were higher on account of the Rs 300-crore Mysore scooter plant going on stream last year. The plant was built through debt-cum-internal accruals and has the capacity to produce 1.5 lakh scooters.

The company hasbeen introducing its scooter `Spectra' gradually in various states and the production is being stepped up slowly. Market perception that the product was costly forced the company to come out with an economy variant. It is also contemplating an electronic version too. Phased ramping up of production meant that capacity could not be put to effective use and hence fixed costs towards interest and depreciation could not be recovered. TVS-Suzuki is also planning to progressively shift production of its scoterette Scooty to the Mysore plant to utilise the capacity better.

INSIGHT:

Margins under pressure

The 25 per cent volume growth in the first quarter accounts for the 33.02 per cent revenue growth at TVS Suzuki. But this aside, there are two worrying signs for the two-wheeler major. The first being the dip in the operating margins from 12.11 per cent to 11.75 per cent. The other being the 41.22 per cent increase in interest charges. The Rs 300-crore Mysore scooter plant going on stream lastyear was responsible.

With TVS Suzuki aggressively entering the big-league scooter market, the company would have the full complement of two-wheelers from the Indo-Jap motor cycle segment to mopeds. But the two-wheeler market is evolving into a volumes game, where a company's ability to achieve economies of scale could be crucial. TVS could well find its margins under pressure given the costs of new product launches, brand development.

-- Percy Dubash