• APRIL 23, 2001

Dismal volumes drive down TVS's net

TVS Suzuki, a leading manufacturer of motorcycles, mopeds and scooters has reported a net profit of Rs 612.5 m for FY01, a decline of 30% YoY. The company's sales grew by 15% YoY to Rs 18.6 bn in FY01, which was driven mainly by higher realisations as total volumes grew by only 4% YoY.

These results are worse off than ours and market expectations. We had expected a 13% YoY drop in net profit for FY01.

(Rs m) 4QFY00 4QFY01 Change FY00 FY01 Change
Sales 4,419 4,498 1.8% 16,161 18,582 15.0%
Other Income 32 23 -29.6% 100 100 0.0%
Expenditure 4,013 4,311 7.4% 14,426 17,202 19.2%
Operating Profit (EBDIT) 406 187 -54.0% 1,736 1,379 -20.5%
Operating Profit Margin (%) 9.2% 4.2%   10.7% 7.4%  
Interest 42 12 -70.6% 211 150 -28.6%
Depreciation 115 121 5.2% 425 470 10.6%
Profit before Tax 282 77 -72.8% 1,199 858 -28.5%
Other Adjustments - -   - -  
Tax 62 34 -44.9% 325 245 -24.5%
Profit after Tax/(Loss) 220 42 -80.8% 874 613 -29.9%
Net profit margin (%) 5.0% 0.9%   5.4% 3.3%  
No. of Shares (eoy) (m) 23.1 23.1   23.1 23.1  
Diluted number of shares 23.1 23.1   23.1 23.1  
Diluted Earnings per share* 38.1 7.3   37.8 26.5  

The main reasons for the discrepancy is that the company's performance in 4QFY01 has been worse off due to a slowdown in rural demand. Besides, higher competition and increase in marketing and advertising costs has lead to a huge drop in operating margins from 9.2% in 4QFY00 to 4.2% in 4QFY01.

For 4QFY01, the company has reported a dismal 81% YoY drop in net profit. The company's 4QFY01 sales at Rs 4.5 bn has reported a growth of only 1.8% YoY. The main reason for this huge decline in 4QFY01, is the fact that the two wheeler industry as a whole has slowed down in the past couple of months. Specifically, volume growth in the motorcycle and mopeds segment, has started tapering off due to a decline of around 2% in agricultural production in FY01. Rural demand has slowed down due to lag effect on rural incomes.

TVS gets around 84% of its sales volumes from motorcycles and mopeds. The sharp decline in TVS's mopeds in 4QFY01 by 18% YoY has resulted in an overall decline in this segment by 4% for FY01. Infact for the first nine months of FY01, the company had reported a 1.2% YoY growth in moped volumes.

In motorcycle volumes too the company has reported a growth of 8.6% YoY for FY01. However for the 1st three quarters the growth was higher at 11%. The growth in this segment in 4QFY01 tapered off to only 2%.

Volumes FY00 FY01 YoY% 9m FY00 9m FY01 YoY% 4QFY00 4QFY01 YoY%
Motorcycles 326,357 354,505 8.6% 239,980 266,614 11.1% 86,377 87,891 1.8%
Mopeds 381,850 366,479 -4.0% 278,456 281,934 1.2% 103,394 84,545 -18.2%

As competition too has picked up in motorcycles, the company's operating margins during the year have been under pressure. The entry of Bajaj Auto has resulted in TVS loosing market share in the 4 stroke 100 cc motorcycle segment.

Higher expenses on account of marketing, staff expenses and raw materials as well as pressure on price realisations has resulted in a decline in operating margins to 7.4% in FY01.

In the current financial year too we believe the company's margins will be under pressure due to more competition in all three segments as well as a slowdown in overall two wheeler demand. Threat of cheaper Chinese imports too looms over the industry.

On the current price of Rs 103, TVS is trading at 3.9x FY01 EPS of Rs 26.5. As these results are lower than ours and market expectations, we will be downgrading our forecasts for TVS Suzuki for FY02E and FY03E by 15%-20%.

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