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TVS Suzuki: Awaiting recovery - Views on News from Equitymaster
 
 
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  • Jul 31, 2001

    TVS Suzuki: Awaiting recovery

    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.

    (Rs m) 1QFY01 1QFY02 Change
    Sales 4,466 4,050 -9.3%
    Other Income 42 21 -50.4%
    Expenditure 4,055 3,779 -6.8%
    Operating Profit (EBDIT) 411 271 -34.1%
    Operating Profit Margin (%) 9.2% 6.7%  
    Interest 48 36 -25.3%
    Depreciation 122 118 -3.6%
    Profit before Tax 282 138 -51.2%
    Other Adjustments -    
    Tax 76 30 -60.5%
    Profit after Tax/(Loss) 206 108 -47.7%
    Net profit margin (%) 4.6% 2.7%  
    No. of Shares (eoy) (m) 23.1 23.1  
    Diluted number of shares 23.1 23.1  
    Diluted Earnings per share* 35.7 18.6  
    *(annualised)      

    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.

    Volumes 1QFY01 1QFY02 % change
    Motorcycles 88,928 87,070 -2%
    Mopeds 95,972 58,579 -39%
    Scooters 34,191 38,422 12%
    Total volumes 219,091 184,071 -16%
    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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