Scorching Speed

Updated: Aug 25 2002, 05:30am hrs
TVS Motor (TVSM) is fast emerging out of the shadow of its Japanese partner, Suzuki Motor Company (SMC), thus dispelling the question mark over its future.

It has reported robust sales and bottomline growth in its first quarter to June 2002. Just about a year ago in October 2001 when SMC decided to exit from its JV with the Sundaram Clayton (SC) group by selling its entire 26 per cent stake to SC at Rs 15 per share (a whopping discount to the then market price of Rs 80 per share), experts were apprehensive over the companys future.

The year 2000-01 was a stumbling block for the erstwhile TVS-Suzuki that had introduced the first 100 cc bike in the country. Led by its two-stroke bikes, the company enjoyed considerable success during 1996-97 to 1999-2000 with its market-share reaching as high as 28 per cent in 1998 and the scrip scaling a high of Rs 820 in October 1999.

But, its excessive reliance on two-stroke motorcycles proved a costly mistake. By 2000-01, it hit a roadblock with a dip in bottomline. However, TVSMs fortunes have taken a U-turn. During the quarter to June 2002, its sales have jumped 54 per cent to Rs 630 crore, fired by the performance of Victor that has helped it improve its market share from 13 per cent to 18 per cent since its launch.

While the motorbike segment has witnessed a y-o-y growth rate of 55 per cent TVSM has bettered it by clocking 89 per cent through sale of 55,000 bikes.

OPM improved by 230 basis points to 8.9 per cent. Much of this improvement is owing to the introduction of new products and rapid sales growth than a reduction in overall expenditure.

As a result of lowering of interest costs and moderate depreciation charges, PBT trebled to Rs 42.3 crore (Rs 13.7 crore). However a four-fold rise in taxation pared down the bottomline growth to Rs 26.7 crore (Rs 10.7 crore).

The question that pops up now is : Can this kind of growth be sustained in the coming quarters The drought-like situation in several parts of the country threatens to disrupt the dream-run of the motorbike segment.

A prolonged drought can put a spoke in the wheel of the bike segment as lower rural incomes can affect demand for bikes. However, so far, TVSM has been somewhat insulated from the adverse situation.

One of the reasons is that the company has a major presence in the southern markets especially in Tamil Nadu which is dependent on the North-east monsoon and not on the erratic South-west monsoon that has been a cause of concern so far.

Overcapacity in the motorbike segment is likely to prove a major threat. Already there is heavy discounting that can bleed the margins.

TVSMs improvement in its OPM on a q-o-q basis may seem significant but it pales in comparison with its competitors Hero Honda and Bajaj that boast margins of 16-18 per cent. Now that Victor has proved to be a success, TVSM will need to flank it with another winner. Overdependence on a single model may not work in the long run.

However, no new product launch is expected at least in the next three months. Another issue that has been nagging TVSM is a lack of good dealerships in the metros. Though it has been improving its share in the northern and western states, it still lags behind in states like Punjab and UP. TVSM is eyeing the growing markets of Indonesia and Vietnam. It is likely to enter the markets through a joint venture. It aims for a 15 per cent share from its international business.

It still has an agreement of technology transfer with SMC for a time period of another 18 months. But it will have to either establish itself as an indigenous manufacturer of quality four-stroke bikes, or else, would have to scout for technology transfer from someone else.