TVS Motor Q1 net profit down 3% impacted by higher expenses

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Published: July 23, 2019 1:46:10 AM

According to TVS Motor Company CFO K Gopala Desikan, impact of raw material costs is coming down and the demand is likely to improve during the festive season. “

Besides, liquidity crunch further dampened demand and inventory levels rose to a new high.

TVS Motor Company on Monday reported a 3% year-on-year (y-o-y) decline in net profit at Rs 142.30 crore for the quarter ended June 30, 2019, affected mainly by higher expenses. The profits were slightly below the Bloomberg consensus estimates of Rs 145.3 crore. Revenues from operations, however, grew 7% y-o-y to Rs 4,469.82 crore.

The Chennai-headquartered company’s operating profit margins improved marginally by 30 basis points at 8% due to lower raw material costs. Consequently, the firm’s Ebitda (earnings before interest, taxes, depreciation and amortisation), rose 10.8% y-o-y to Rs 355.8 crore. Raw material costs, as a share of net sales, fell by 430 basis points in the April-June quarter.

Analyst at Nomura earlier said price rise due to new safety norms and other competitive pressure would continue to impact margins. “Rising competitive pressure in the industry is impacting on pricing discipline and could curtail margin improvement for TVS,” they noted.

The company’s domestic volumes declined 3% y-o-y to 711,632 units in Q1 FY20, lower than the industry’s de-growth of over 11% y-o-y. It managed the inventory levels by pushing less stock at the dealers compared to the competitors.

TVS Motor Company CEO K N Radhakrishnan said the moped segment sales, which declined 21% y-o-y in Q1FY20 was particularly impacted due to hike in insurance premium. “We expect the negative impact to fade in the forthcoming quarter and the second half should see some recovery in the overall two-wheeler sales,” Radhakrishnan told analysts on the investor call.

According to TVS Motor Company CFO K Gopala Desikan, impact of raw material costs is coming down and the demand is likely to improve during the festive season. “It’s not that liquidity is a major issue now, the problem is interest costs have gone up significantly, which is hurting the entire industry,” Desikan told analysts.

Two-wheeler demand remained lacklustre for the ninth consecutive month in July, falling 12% y-o-y, dragged down by steep decline reported by all the companies. Demand was impacted by hike in insurance premium in September 2018 and subsequent price hikes taken by firms on April 1 on account of new safety norms. Besides, liquidity crunch further dampened demand and inventory levels rose to a new high.

Analysts said retail demand is still weak and inventory levels are way higher than normal. “While production cuts have led to some inventory correction from peaks, channel inventory still remains high, particularly in two-wheelers. Retail demand remains muted almost pan India,” analysts at Jefferies said.

According to analysts at Nomura, high inventory with dealers led to weakness in wholesales volumes. Besides, price hikes due to new safety norms weakened demand. “We expect the industry to remain weak in the near-term on account of high and rising cost pressure by price hike due to safety norms,” they wrote.

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