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B. Krishnakumar

AIDED by steady growth in sales volume, top two-wheeler producers have seen their share prices settle at higher levels. Taking into account the recent spurt in sales volume and the success of recently launched models, the performance of TVS Motor Company is likely improve this fiscal. Long-term investors can use price declines to pick up equity exposure in the company.

TVS Motor occupies a prominent position in the two-wheeler industry due to its powerful position in mopeds, scooterettes and two-stroke motorcycles. However, over the last couple of years, the company's performance deteriorated.

The muted success in the four-stroke scooter market, a steady shift in consumer preference towards four-stroke motorcycles and a drop in volume in mopeds segment affected the performance and market standing of TVS Motor. The recent launch of the Fiero model marked the company's entry into the four-stroke segment. After the successful launch of Fiero, the company subsequently introduced the indigenously developed model — Victor. While Fiero was positioned at the upper end of the four-stroke motorcycle market, Victor is positioned in the popular Rs 4,0000-4,5000 price segment. The Victor model vies for market share with like products, such as Splendor, Passion and Caliber.

Being an indigenously developed product, the profit margin associated with Victor would be relatively higher on account of lower import content. Besides, unlike other producers, the company is not required to pay royalty, as Victor is a byproduct of in-house R&D efforts.

In a recent development, the company ended its technology tie-up with Japan's Suzuki Motor. Though this move was initially viewed as a major negative factor, subsequent events proved otherwise. The company demonstrated its in-house technical capabilities through the successful launch of Scooty, followed by Victor. The commercial success of Victor (even amidst a highly competitive market environment) indicates the technical and market strength of TVS Motor.

The success of Fiero, followed by Victor, has arrested the drop in volumes seen in the previous fiscal. Over the last few months, the motorcycle offtake has picked up. After reporting a 27 per cent growth in motorcycle market in November, TVS Motor logged an impressive 40 per cent volume jump in December. TVS' overall sales during December rose to 73,259 units, compared to 66,319 units in the corresponding previous period.

The growth in motorcycle segment will help the company reverse the recent drop in its financial performance.

And, any improvement in agricultural sector, especially in Tamil Nadu would lead to a recovery in the mopeds segment as well.

On balance, TVS Motor appears to on a strong recovery path. Though the ever-growing competitive pressure will be a constraint to any significant jump in profitability, the in-house technical capability would be a strong factor in the company's favour in arresting any significant decline in competitiveness. The stock market has already taken note of the improvement in the company's fundamentals. In the backdrop of the recent recovery in sales volume, long-term investors could consider exposure to the company.

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