Financial Daily from THE HINDU group of publications
Sunday, Feb 06, 2005
Financial Daily from THE HINDU group of publications Sunday, Feb 06, 2005 |
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Investment World
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Stocks Markets - Recommendation TVS Motor: Hold B. Krishnakumar
The performance of the latest launches such as TVS Victor GLX will dictate valuation.
Helped by a pick up in demand across all product categories, TVS Motor recorded a 20 per cent growth in turnover to Rs 803.7 crore for the quarter ended December 2004. The growing acceptance of its recent launches such as Victor GLX, Victor GX and Centra appears to have revved motorcycle sales by 25 per cent. The company continues to maintain its leadership position in the scooterette and moped segments that grew 11 per cent and 3 per cent respectively. The success of Scooty Pep, an upgraded four-stroke version of Scooty, pushed up scooterette sales volume. As with other two-wheeler producers, TVS Motor's profitability was strained in the third quarter of this fiscal. From 8.8 per cent, the operating profit margin dropped to 7.9 per cent during the December 2004 quarter. The sharp rise in the price of key inputs, steel in particular, and the increased outgo on advertisement and promotional activities dented the profitability. With a surfeit of offerings in almost all motorcycle categories, TVS Motor had to resort to aggressive promotional schemes. The company also launched quite a few models in the recent quarters. This also pushed up the advertisement cost. The post-tax earnings rose a nominal 3 per cent to Rs 28.2 crore.
The degree of success enjoyed by the latest launches, such as StaR, Victor GLX and Victor GX, would determine the financial performance of the TVS Motor and the valuation accorded to its stock. The company faces stiff competition in almost all categories of the motorcycle market. In the entry-level, the company has to contend with Bajaj's CT 100 and Hero Honda's CD Dawn, both very popular and clocking sharp volume growth. In this backdrop, it remains to be seen how StaR stacks up. In the executive segment, it faces competition from Hero Honda Splendor+, Passion Plus and Bajaj Caliber. The opening up of the 125 cc segment is a major development in recent times. Taking into account the marginal price difference between 100 cc and 125 cc models, there is a possibility that the latter would outpace the former in the executive category. The scorching growth recorded by Bajaj's 125 cc Discover is a case in point. Given this backdrop, it is quite likely that TVS Motor's Victor GX and Bajaj's Caliber will suffer on account of the growing popularity of such 125 cc models as Discover or Victor GLX. TVS Motor's fortune would hinge on the volume growth achieved by Victor GLX model. If the recently launched 100 cc model StaR (in the entry level price bracket) turns out to be a hit, it would arrest the falling trend in motorcycle sales; it however remains to be seen what kind of impact it would have on the profitability or the bottomline. With the new product pipeline almost drying up, the company would have to rely on the recent launches for retaining and gaining market share in the motorcycle segment. The next major venture of TVS Motor would be in the three-wheeler segment, which would acquire greater significance if the recent launches do not attain the desired level of success. The entry of Honda Motorcycle and Scooters into the motorcycle market and the impending entry of Suzuki would only aggravate the competitive pressures.
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