TVS Suzuki: Higher volumes at the cost of lower margins
TVS Suzuki Ltd. has posted a 23% jump in two wheeler sales for the month of July 1999 as compared with the corresponding period in the previous year. Sales during April - July 1999 have registered a YoY growth of 25%.
TVS Suzuki Ltd. (FY99 Turnover Rs 13.1 bn) is a joint venture between Sundaram Clayton (TVS Group) and Suzuki Motor (Japan). It operates in all the three segments of the two wheeler market - motorcycles, scooters and mopeds.
The company has recorded an increase in the sales of all the products - motorcycles, scooters, scooterettes and mopeds. The rise in sales is mainly due the increased rural incomes and the general step up in demand for two wheelers. However, the company has yet to launch the four-stroke version of its motorcycles. This could depress sales in the run up to the deadline of April 1, 2000 for making the vehicles Euro II compliant.
TVS operates in a fiercely competitive industry. The company has resorted to offering discounts on its products to beef up sales. This was reflected in the lower net profit margins during the first quarter of the current financial year. Therefore, though there is a jump in sales, it has been achieved at the cost of lower profit margins.
Analysts have rated the stock as a 'BUY' mainly on account of the proactive nature and the track record of the management. The company's initiatives in making its vehicles Euro II complaint have lent support to this rating. However, some analysts have rated the stock as a 'SELL' as they are skeptical of the company's scooter venture.
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