Financial Daily from THE HINDU group of publications
Sunday, Oct 26, 2003
Financial Daily from THE HINDU group of publications Sunday, Oct 26, 2003 |
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Investment World
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Stocks Markets - Recommendation TVS Srichakra: Book profits B. Krishnakumar
In the wake of recent developments such as slowdown in TVS Motor's sales and firm trend in price of key raw materials such as carbon black and natural rubber, there is little scope for significant growth in performance in the near term. Taking into account the recent appreciation in share price, shareholders could reduce exposures at the current price level of Rs 57.5. TVS Srichakra enjoys a prominent presence in the two-wheeler tyre industry. It derives bulk of the revenues from the original equipment market. The company caters to the requirements of almost all the two-wheeler majors, including TVS Motor, Hero Honda and Bajaj Auto. TVS Srichakra has a significant earnings exposure to its group company — TVS Motor. The performance of TVS Srichakra has tended to fluctuate in sync with the two-wheeler production. However, the performance of TVS Motor has had a significant impact on TVS Srichakra's earnings. Helped by success of Victor, TVS Motor managed to record a sharp increase in motorcycle sales in 2002-2003. This, in turn, had a positive impact on TVS Srichakra's performance. The turnover rose 28 per cent to Rs 208.1 crore and the post-tax earnings by 27 per cent to Rs 7.8 crore. The per share earnings on an equity base of Rs 7.66 crore is Rs 10.24. However, the growth in earnings of TVS Srichakra has tended to slow down in the past few quarters. Apart from the sluggish growth recorded by TVS Motor, the growing competitive pressure in the tyre industry has affected the company's performance. The impact of the competitive pressure and the firm raw material price trend is reflected in the second quarter performance.
For three-month ended September 2003, the turnover fell 2 per cent to Rs 53.4 crore and the post-tax earnings 4 per cent to Rs 1.9 crore. To enhance its presence in the replacement market, the company has entered into an agreement with Apollo Tyres. Consequent to this agreement, Apollo Tyres would be marketing TVS Srichkra's tyres through its outlets. This could have a positive impact on the company's performance. Going forward, the growth prospects for its key customer — TVS Motor — would be critical toTVS Srichakra's performance. The company's share price recovered from Rs 44 in January to the current level of Rs 57.5. Taking into account the recent slowdown in earnings and the lacklustre growth prospects, shareholders could book profits. However, any evidence of pick-up in TVS Motor's sales could be used to take fresh exposures at lower levels.
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