The Hindu Business Line : TVS Motor: Hold

TVS Motor has reported a rather lacklustre performance for the six months ended September 2004. The slowdown in volume growth in the first quarter of this fiscal and the mounting pressure on profitability have affected the company's performance. The recent pick-up in motorcycle offtake and the recovery in moped demand are the positive features.

After the success of the Victor model, introduced a couple of years ago, TVS Motor has not enjoyed similar degree of success in subsequent launches. The continued decline in the demand for two-stroke motorcycles and the mounting pressure of competition from Bajaj and Hero Honda have affected TVS Motor's performance.

In the first half of this fiscal, the turnover fell 5 per cent to Rs 1,353.9 crore. TVS Motor, however, managed to effect savings on the raw material consumption front. This was possible because of the merger with itself of the engine component division of its subsidiary, Lakshmi Auto Components.

. The benefits of the merger has been negated to a certain extent by the sharp rise in the price of other inputs, including steel. However, on a sequential basis, the company recorded a healthy growth in earnings.

For the quarter ended September 2004, it posted a turnover of Rs 742.9 crore compared to Rs 611.1 crore for the quarter ended June 2004. Much of the growth in sales is attributed to the pick-up in demand for the latest launches — Centra and Victor GLX.

The aggressive marketing strategy along with the changed approach to advertisement campaign boosted the demand for the Centra model. The 125 cc Victor GLX model too appears to be faring well. The increased sales of Scooty Pep and the marginal recovery in moped demand also played a part in pushing up the turnover.

Increased sales and cost control have helped the company manage a 25 per cent improvement in post-tax earnings for the quarter ended September 2004. The net profit was Rs 34.2 crore for the September quarter against Rs 27.2 crore in the three-month period quarter ended June 2004.

The company's performance is likely to be under pressure. Its prospects depend on the market acceptance of recent launches such as Victor GLX, Victor GX and TVS Star. The flurry of model launches by the competitors across various price segments is a cause for concern.

The motorcycle market is flooded with models with a 125 cc engine and carrying a price tag very close to the 100 cc models. With a few products in the 100 cc segment, TVS Motor is likely to feel the heat.

Despite the relaunch of the Fiero, the consumer response has been relatively lukewarm. The entry of Honda Motorcycle through the launch of the Unicorn model and the impending product launches from Hero Honda would only add to the competitive pressure.

The company's latest launch — TVS Star — positioned in the entry-level price segment, would also face stiff competition from the likes of Bajaj's CT 100 and Hero Honda's CD-Dawn. TVS Motor and its competitors have resorted to aggressive promotional strategies. This trend is likely to persist with the two-wheeler market getting overcrowded with models in any given product category.

TVS Motor's share price recovered ground recently on the back of the improved motorcycle offtake over the past few months. Shareholders can remain invested; fresh equity exposures in the company can be considered after assessing the market performance of the recent launches such as the 125 cc Victor GLX, Victor GX and Star.

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