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19% volume growth fails to spruce up TVS Suzuki's net - Views on News from Equitymaster
 
 
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  • Apr 25, 2000

    19% volume growth fails to spruce up TVS Suzuki's net

    TVS Suzuki Ltd has reported a net profit growth of 6.6% in FY2000 to Rs 875 m as compared to Rs 821 m reported during FY99. TVS Suzuki's sales grew by 22.8% to Rs 16,317 m in FY2000 as compared to Rs 13,285 m reported in FY99. The growth in net profit was low inspite of higher volumes reported by the company mainly due to increase in marketing and raw material costs.

    TVS Suzuki is a joint venture between Sundaram Clayton (TVS group) and Suzuki Motors, Japan. The company has a presence in all the two wheeler segments. The company's dynamic management, product launches, technical superiority and a well established network are its strengths. It reported a sales of Rs 16,317 m for FY2000.

    (Rs m) FY1999 FY2000 Change
    Sales 13,285 16,317 22.80%
    Other Income - -  
    Expenditure 11,725 14,473 23.40%
    Operating Profit (EBDIT) 1,560 1,844 18.20%
    Operating Profit Margin (%) 12% 11%  
    Interest 200 276 38.10%
    Depreciation 305 416 36.40%
    Profit before Tax 1,055 1,152 9.20%
    Other Adjustments - - -
    Tax 234 277 18.40%
    Profit after Tax/(Loss) 821 875 6.60%
    Net profit margin (%) 6.20% 5.40%  

    On the volume front the company has performed well as it reported a growth of 19% YoY in FY2000 and this was higher than the industry average growth of 11%. Its market share in FY2000 improved by 22%, and it sold 836,000 units during the year.

    The main reasons for this good growth in volumes is attributed to the motorcycle segment which has been performing well due to shift in consumer preferences from scooters to motorcycles and higher rural incomes. In FY99 motorcycles accounted for 53% of TVS Suzuki's sales and growth in this segment has boosted volume growth.

    For the first eleven months of FY2000, TVS Suzuki has bucked the trend in scooter sales as it has reported a growth of 27% YoY due to a new product introduced, as compared to the overall scooter industry sales which fell by 4.1% YoY during this period. Infact industry majors Bajaj and LML reported declines of 8% and 13% YoY during this period.

    The increase in costs in FY2000 for TVS Suzuki is mainly due to product launches during the year which lead to higher marketing costs and thus took its toll on the company's net profit. Also increased competition and pricing pressure lead to a fall in the company's margins. In the motorcycle segment the company launched the 4 stroke Suzuki Fiero and in the moped segment it launched XL Super Heavy Duty in FY2000. It is also planning further product launches in FY2001 some of which are an electric start version of its scooter, Spectra and TVS Sport, a moped aimed at the urban consumer. Hence the future sales growth are going to be driven by new products.

    Market View:
    Analysts have rated TVS Suzuki as a long term 'buy" as the new vehicles it has introduced will take time to establish themselves. The company would be faced with higher marketing costs to build up brands as competitors have already well established products.

     

     

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