TVS Suzuki: Tough times continue - Views on News from Equitymaster

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TVS Suzuki: Tough times continue

May 4, 2001

TVS Suzuki, a leading manufacturer of two wheelers, continues to face tough times. For April 2001, the company's total sales volume at 51,118 fell by 24% over March 2001 volumes of 67,016 units, mainly due to a sharp fall in moped volumes. The company has projected a 7.6% growth in overall volumes for FY02 to 929,500 units as compared to 863,559 units in FY01. Though this is in line with market expectations, it is likely to be lower than its peers. The main growth is likely to come from its motorcycle and scooter segments as the moped segment continues to shrink.

TVS Suzuki has been a late entrant in the four stroke motorcycle segment and as a result has lost out in this segment as compared to its peers, Hero Honda and Bajaj Auto in FY01. Both these companies have seen an improvement in their market share in FY01, however TVS's market share in the motorcycle segment fell in FY01.

The company plans to come out with new models in the four stroke 100 cc motorcycle segment in the current year so as to improve its share in this fast growing segment. This segment is currently Hero Honda's forte with its largest selling bike the Splendor. Though TVS's Fiero (175 cc bike) in the premium end is doing well, the 100 cc segment accounts for 80% of total motorcycle demand. Hence it is important to have a presence here. However, the company is entering the 100 cc segment when the motorcycle segment is facing a lower pace of growth.

Another tough area that TVS Suzuki needs to tackle is its falling moped sales. Mopeds accounted for 46% of total sales in FY00 and 42% in FY01. In FY01, the company's moped sales fell by 4% YoY to 366,479 units. The company has been seeing a decline in its moped volumes due to a shift in consumer preference from this segment towards motorcycles. Also the recent reduction in excise duty from 24% to 16% for motorcycles and scooters is leading this switch in demand.

(Units sold) FY00 FY01 Change Mar-01 Apr-01 Change
Motorcycles 326,357 354,505 9% 32,425 27,512 -15%
Mopeds 381,850 366,479 -4% 25,292 15,250 -40%
Scooters/Scooterettes 127,550 142,575 12% 9,299 8,356 -10%
Total 835,757 863,559 3% 67,016 51,118 -24%

We expect the company's margins to remain under pressure in the current financial year as it will have to spend substantial amounts for marketing and advertising. Also its product development expenses are likely to rise.

The overall two wheeler segment is showing signs of a slowdown in the current year due to low agricultural growth since the past two years. Even though the import duty on CBU's has been hiked from 35% to 60%, the threat of Chinese imports continues to weigh down on the industry.

Even though prospects for the company do not look as bright, its valuations are at very low levels. On the current price of Rs 90, TVS Suzuki is trading at 3.4xFY01 EPS of Rs 26.5.

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