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TVS:Operating margins drive down profits - Views on News from Equitymaster
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  • Jan 24, 2001

    TVS:Operating margins drive down profits

    TVS Suzuki a leading manufacturer of motorcycles, mopeds and scooters reported a net profit of Rs 162 m for the 3QFY01, a decline of 17.5% YoY. The company's sales however grew by a robust 25% YoY on the back of a 10% growth in total volumes and a 14% growth in realisations in the 3QFY01.

    The main reason for this decline in net profit is the fact that the company was faced with higher expenses related to marketing, advertising and other costs as competition in the motorcycle segment has increased substantially in the current year with the entry of Bajaj Auto.

    (Rs m) 3QFY00 3QFY01 Change
    Sales 3,883 4,864 25.3%
    Other Income 32 29 -9.4%
    Expenditure 3,476 4,483 29.0%
    Operating Profit (EBDIT) 408 382 -6.3%
    Operating Profit Margin (%) 10.5% 7.8%  
    Interest 71 62 -12.9%
    Depreciation 109 127 16.8%
    Profit before Tax 260 222 -14.6%
    Other Adjustments - -  
    Tax 64 60 -5.8%
    Profit after Tax/(Loss) 196 162 -17.5%
    Net profit margin (%) 5.1% 3.3%  
    No. of Shares (eoy) (m) 23.1 23.1  
    Diluted number of shares 23.1 23.1  
    Diluted Earnings per share* 34.0 28.0  

    The company has had to offer higher incentives in the motorcycle segment due to its late entry into the four stroke segment. Motorcycles accounted for 44% of the company's sales mix in 3QFY01 as compared to 37% in the 2QFY01 and 41% in the 1QFY01 due to a volume push in the 3QFY01. This has led to lower operating margins in the 3QFY01 to 7.8% as compared to 10.5% in the 3QFY00.

    Compared to the previous two quarters too the operating margins have declined. In the 1QFY01 and the 2QFY01 TVS had reported an operating margin of 9.1% and 8.5% respectively.

    Volumes 3QFY00 3QFY01 Change
    Motorcycles 78,314 95,186 21.5%
    Mopeds 88,407 87,461 -1.1%
    Scooty and Scooters 32,364 36,147 11.7%
    Total volumes 199,085 218,794 9.9%
    Average realisation (Rs) 19,505 22,232 14.0%

    We will have to revise our net profit forecast of Rs 840 m for FY01E downwards by around 10% on the back of dismal margins in the 3QFY01. We do not see any improvement in the company's margins atleast for another 6 months due to higher competition in the 100cc four stroke motorcycle segment and the fact that the company is loosing market share to Bajaj Auto.

    On the current price of Rs 170, it is trading at 4.6x FY00 EPS of Rs 37.3.



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