• NOVEMBER 18, 2002

TVS: A re-look at fundamentals

Buoyed by robustness in motorcycle demand, stock markets have been bullish on two-wheeler stocks like TVS, Bajaj Auto and Hero Honda. But the time has come to take a re-look at fundamentals. Here we analyse TVS’s growth prospects.

After losing market share to peers like Hero Honda and Bajaj Auto, TVS has gained share in the motorcycle segment on the back of some new launches. Apart from adopting an aggressive pricing strategy for its low-end model viz. ‘Max 100-R’, TVS introduced its indigenously developed motorcycle, ‘Victor’, in FY02. Consequently, the company’s market share in the motorcycle segment increased to 18% in 1QFY03. We expect TVS’s market share to touch 20% in the next two years.

Apart from volumes, contribution from higher end models like ‘Victor’ and ‘Fiero’ has increased significantly in the last two years. Our estimates suggest that both the aforesaid models accounted for as high as 35% of volumes in FY02 (Victor accounted for 16%). Considering the robustness in ‘Victor’ sales, the company is expected to benefit from better price realisations in future. TVS is also slated to launch a renewed ‘Fiero’ soon.

At the same time, moped and scooter segments still contribute to 32% of sales for TVS. Given the fact that both the segments are witnessing a consistent fall in demand in light of a slowdown in the economy and change in consumer preference towards motorcycles, growth prospects are challenging. We expect the moped segment to register a 15% drop in volumes in FY03.

The company intends to spend in excess of Rs 5 bn as capital expenditure towards research and development facilities, capacity expansion and strengthening its distribution network. Given the competitive nature of the two-wheeler industry, revenues may not be commensurate with capital spending in the immediate term and thus could put pressure on profits.

The stock currently trades at Rs 401 implying a P/E multiple of 7.1x FY04E earnings. While valuations may look attractive, considering the company’s regional presence and increased competitive pressure, the medium-term prospects are challenging. This could one of the reasons why the stock is languishing at Rs 380-Rs 420 levels since August 2002, despite increased volume growth.

For more detailed analysis with projections, view our complete research report on TVS

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