TVS Suzuki to spend Rs 3 bn on new models - Views on News from Equitymaster

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TVS Suzuki to spend Rs 3 bn on new models

Aug 24, 2000

Over the next three years, TVS Suzuki will be spending close to Rs 3 bn for new products and models in the two wheeler segment. The company has recently decided to phase out two of its motorcycle models the 'Shaolin' and the 'Shogun' due to a decline in sales and higher costs related to upgrading these bikes to meet emission norms. It has plans of launching 11 new models in the next three years. 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 16.2 bn for FY2000.

The company has plans of relaunching its four stroke scooter the 'Spectra'. The company had introduced the 'Spectra' model to the market in September 1998. However this model had not done well due to technical problems and its pricing, which was on the higher side. The company is also working on launching a new version of its four stroke bike the 'Fiero" in the current year.

TVS Suzuki volumes up 13% YoY in the 1QFY01
(no. of units sold) 1QFY00 1QFY01 % change
Motorcycles 75,796 89,074 18%
Moped 88,727 95,819 8%
Scooter 28,830 33,944 18%
Total 193,353 218,837 13%

This strategy of the company to concentrate on new product launches stems from the fact that competition in the two wheeler segment is picking up. Bajaj Auto Ltd has become an aggressive player in the motorcycle segment with its brands the 'Caliber' and 'Boxer'. In future too it has plans of launching two new models in 2000-01, the 'Pulsar' and 'Eliminator'.

As April'2000 emissions norms for two wheeler's in India clearly state, that two stroke models should either be phased out or upgraded to four stroke models by installing catalytic converters, the company has opted for the former.

Inspite of buoyant sales over the last couple of years, TVS's gross margins have been under pressure, due to higher marketing and raw material costs. As the company was not able to raise prices of its models due to low acceptance of some of them in the market, it has decided to phase them out.

The company's share price has fallen by 38% in the past six months and is currently trading at Rs 218.5 on a price to earnings multiple of 5.8 x FY2000 earnings.

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