TVS Suzuki, a leading manufacturer of two wheelers continues to take a beating. The company's net profit for 1QFY02 fell by 47.7% YoY to Rs 108 m. The main reasons for the poor performance is the drop in volumes in its moped and motorcycle divisions. This has resulted in an overall decline in volumes by 16% YoY in 1QFY02. The company's sales declined by 9.3% YoY to Rs 4,050 m due to a 7.9% YoY improvement in its realisations from Rs 20,386 in 1QFY01 to Rs 22,004 in 1QFY02.
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Due to rising competition, the company's expenses on product development as well as marketing costs continue to put pressure on its margins. Operating expenditure as a percentage of net sales is up from 91% in 1QFY01 to 93% in 1QFY02, resulting in a drop in operating margins to 6.7% in 1QFY02.
The company has lost market share to Bajaj Auto and Hero Honda in the past year and continues to lag behind. The main reason behind this being that the company has been slow to to make a mark in the four stroke mobike segment. Specifically, the company lacks presence in the four stroke 100 cc bike segment, which is the fastest growing segment currently and accounts for close to 80% of the motorcycle industry.
TVS's moped volumes account for a large chunk of overall product sales. Since 4QFY01, moped volumes have been shrinking due to change in consumer preference towards motorycles. The reduction in excise duty in the budget, for scooters and motorcycles, from 24% to 16% is also one of the reasons of the switch from the moped segment.
Though the company has plans to launch a four stroke 100 cc bike in the current year and also plans to launch new models in the scooter segment, it will face tough competition from existing players. In the scooter segment, it will face competition from Honda's 100% subsidiary for scooters. We do expect agricultural income to improve in 2HFY02 due to normal monsoons, hence it is likely that TVS Suzuki could gain from higher demand for scooters and motorcycles, however margins will continue to be under pressure.
These results however have been better than market expectations. On the current price of Rs 92, TVS Suzuki is trading at compelling valuations of 3.5x FY01 EPS of Rs 26.5. It is trading at a 63% discount to its 52 week high of Rs 249.
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