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TVS: Will 'Victor' give a thumbs up? - Views on News from Equitymaster
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  • Oct 12, 2001

    TVS: Will 'Victor' give a thumbs up?

    TVS Suzuki has reported a 49% drop in net profits to Rs 103 m for the second quarter ended September 2001 on the back of a 8.8% decline in sales. Margins have also taken a pounding on account of higher competition and slower volume growth.

    (Rs m) 2QFY01 2QFY02 Change
    Sales 4,694 4,283 -8.8%
    Other Income 35 43 22.9%
    Expenditure 4,294 3,997 -6.9%
    Operating Profit (EBDIT) 400 286 -28.5%
    Operating Profit Margin (%) 8.5% 6.7%  
    Interest 57 29 -49.1%
    Depreciation 101 137 35.6%
    Profit before Tax 277 163 -41.2%
    Extraordinary item - -  
    Tax 75 60 -20.0%
    Profit after Tax/(Loss) 202 103 -49.0%
    Net profit margin (%) 4.3% 2.4%  
    No. of Shares (eoy) (m) 23.1 23.1  
    Earnings per share (Rs)* 35.0 17.8  

    TVS has registered a 8.3% fall in overall volumes for the first half of the current year. Cumulative volumes comprising moped, scooter and motorcycles fell from 421,349 units in 1HFY01 to 386,285 in 1HFY02. If one were to look at the quarterly trend, total vehicle sales in 1QFY02 fell by 16% due to a 39% fall in moped volumes. Motorcyle sales, on the other hand, grew by 2% in 1QFY02. The trend continued in the second quarter also. While moped and scooter sales witnessed a de-growth in volumes, motorcycle sales for the first half has increased marginally by 1.3% (moped sales fell by 22% in 1HFY02).

    However, growth in motorcycle sales is much lower than the industry growth rate of around 22% in 1HFY02. To put things in perspective, Hero Honda and Bajaj Auto reported a 35% and 9% growth in motorcycle volumes respectively for September 2001 alone. The reason for a slower volume growth could be its predominantly Southern focus, which is now being targetted by the other motorcycle majors. Nevertheless, the company hopes to acheive a higher volume growth in second half of the current year on the back of the newly launched motorcycle 'Victor'.

    Following Suzuki's decision to exit the joint venture with the TVS Group, the Board of Directors of the company has approved the proposal to change the name of the company from TVS-Suzuki to "TVS Motor Company Ltd".

    Prospects for the rest of the year is not promising for the company. Volumes in the moped segment have stagnated over the last two years. Since mopeds contributed almost 45% of total volumes for the company in FY01, this does not augur well for TVS. With competitors launching 4-stroke motorcycles at a marginal premium to the mopeds and scooters there has been a notable shift in consumer preferences towards motorcycles. Besides the Centre of Monitoring Indian Economy (CMIE) has cut its GDP forecast for the current year to 6% citing poor rainfall in the Southern states of India as one of the key reasons. If this is the case, for companies like TVS that has a higher presence in the Southern states, profitability might be jeopardised.

    The scrip is currently trading at Rs 82 on a P/E multiple of 4.9x 1HFY02 annualised earnings.



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