The Hindu Business Line : `Spectra's failure, stepping stone for Victor' — Mr Venu Srinivasan, MD, TVS Motor Company

TVS Motor Company performed well over the last six months riding on Victor and a revival in other products. This is a break from the last year or two when its major new product launch, Spectra, was not a commercial success, and the company's performance and stock price plunged. In this second and concluding part of his interview to Business Line, Mr Venu Srinivasan, Managing Director of TVS Motor Company, discusses others aspects of the company and industry. The first part of this interview published on May 19 provided insights into the success of Victor.

Excerpts from the interview:

Do you think that the absence of a foreign technical collaborator would turn out to be a mental block from a prospective consumer's viewpoint?

I cannot answer this question better than the consumers. Ask them whether they have a mental block in buying Victor or not. I think "TVS" is a strong brand name and people are underestimating our brand strength. We made a good product and TVS by itself is a trustworthy brand. So we offered a good product under a trustworthy brand and it sells.

Does it mean a company can do away with overseas collaborators in two-wheelers where all global majors have a presence?

It all depends on circumstances. In certain circumstances, it would definitely be worthwhile to have a foreign partner. But in certain circumstances where you want to beat your own path to the market, it is best to go alone. When Suzuki was there, even a minor modification would take 6-12 months. So, we are now in a position to react much more quickly to change. Besides, they (Suzuki) wanted to sell their branded products and parts. But once we produce our motorcycles they stand to lose out on opportunities. Hence, Suzuki wanted to set up its own plant. And we parted ways on mutual consent.

What sort of growth rate do you envisage in motorcycle demand and what is driving growth?

I think a 25 per cent growth target would be a fair comment. Month on month, motorcycle growth was at around 54 per cent in April. But I am not sure if it would continue at this rate throughout the year. But, the way it is growing today, a 45-50 per cent growth appears viable.

It is driven by two factors. India is a place of distances and there is a lot of commuting. Motorcycle is a more suited for commuting than any other vehicle. A combination of comfort, ability to handle bad roads and intrinsic stability makes motorcycles more suitable in the Indian market.

It would come down and plateau at around 75 per cent level (of the total two-wheeler market). But I think new scooters will be launched. Gearless scooters are popular worldwide. And once cities create satellite towns Tamil Nadu is now talking about, you may find that local commuting is done in small scooters. The Activa or Scooty kind of products may come back again. It never remains one way. Earlier, it was predominantly a scooter market, then it was mopeds, scooters and motorcycle; and now motorcycles have taken the upper hand.

What are your targets for this year, in terms of turnover and capital expenditure?

We would like to cross Rs 2,500-2,700 crore this year and sell 10-11 lakh vehicles. We will be spending totally about Rs 200 crore towards capacity expansion and new product development. We will continue with Samurai and Max. Some work will also be done on our two strokes to improve them in a manner that is good for the market. The royalty payment for Fiero ends in September. From there on, we can localise components and Fiero would contribute fully to the bottomline. But, with a price tag of about Rs 50,000, Fiero will always be a relatively low volume product, compared to Victor. After parting with Suzuki, the savings in royalty payment and the local content improvement is about Rs 140 crore.

What do you think would be the key to success in the two-wheeler market?

The future would be all about segmentation of products by differentiation. It is important to differentiate yourself from competition. That is the reflection of inherent understanding of your customer and the market. Following what competitor does could turn out to be disastrous. So, you have to have your own indepth understanding so that you can differentiate it from competitors and thereby create value for the customers.

How do you explain the drop in mopeds volume?

Mopeds have declined for two specific reasons. First, moped is a Tamil Nadu-centric product and its rural economy has been on a significant decline. Two-wheeler growth has been the lowest in Tamil Nadu than any other State. Entry-level farmers have really suffered due to bad monsoon and poor crop prices. Second, there are alternative forms of transport competition. For instance, mini-buses and `town buses' have definitely taken away a certain amount of commuting villagers had to do to go to the town

I do not think the demand for mopeds will revive significantly. It has dropped about 25 per cent than normal and would stay at those levels. As a product category, it has declined significantly in the two-wheeler market.

The fall in the prices of second-hand motorcycles has also affected moped sales. Even if the rural economy picks up, the moped sales volume is unlikely to reach earlier levels.

Will the falling second-hand car prices affect two-wheeler demand?

In my opinion, that will not affect two-wheeler demand. Because the car is still a bit expensive to operate. We could probably see households having a car plus motorcycle or car plus scooterette wherein the car would be used more for family outings. Cars will, probably, live in harmony with two-wheelers.

What are your thoughts on Spectra?

Spectra was an important product... a part of our evolution. Without Spectra we could not have done Victor. We deliberately did Spectra because at that point we still had the joint venture agreement with Suzuki. Launching an indigenous motorcycle at that point would not have made sense as we did not want to enter an area that would directly compete with Suzuki products.

The most important thing is not failure or success. The key thing is to understand what Spectra was. It was a learning product with an aim to produce four-stroke geared two-wheelers.

We did not want to learn through motorcycles as it was the fastest growing market. That is why we chose scooters as our first four-stroke geared product. So, it was to a great degree a planned effort to do Spectra first. Then, we launched Victor. Today, Victor is so outstanding because we had perfected our capabilities to design small four-stroke products on the back of Spectra.

Spectra by itself may not have a future. Scooter prices have dropped significantly. However, the manufacturing cost of a four-stroke geared scooter and a motorcycle costs almost the same while realisations are much better in motorcycles. There is no way that we could have made money by selling Spectra at around Rs 28,000. The break-even for Spectra was at around Rs 33,000.

(Concluded)

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