The Hindu Business Line : TVS Motor: Reduce exposures

The performance over the past couple of years has, however, not been all that encouraging. The relatively muted success of models launched subsequent to Victor, and the sharp rise in input cost have affected TVS Motor's performance.

For the year-ended March 2005, the turnover inched up by 2 per cent to Rs 2,876 crore and post-tax earnings remained almost unchanged at Rs 138 crore.

Apart from the increased input costs, there were quite a few factors behind the lacklustre performance.

The fading popularity of the two-stoke entry-level motorcycle (Max) and the slowdown in the offtake of the flagship model, Victor, affected volume growth. Also, the company does not have a presence in the lower end of four-stroke motorcycle market.

To address these issues, the company came out with a flurry of new models, including the Centra, the StaR and upgraded versions of the Victor and the Fiero.

The introduction of new models and the nation-wide launch of the entry-level StaR, has had a positive impact on motorcycle sales.

For the quarter ended June 2005, turnover rose 21 per cent to Rs 735 crore on the back of a 28 per cent jump in motorcycle sales. The post-tax earnings, however, dropped 8 per cent to Rs 25 crore.

The sharp rise in the prices of key inputs, steel in particular, and the aggressive sales promotional offers affected the profitability of the company.

The company has lined up major projects that include a manufacturing unit in Himachal Pradesh and Indonesia. It is also setting up facilities to produce three-wheelers. These projects are expected to go on stream in 12-15 months.

This fiscal, TVS Motor will be launching variants of StaR and Scooty and a new 150cc bike. The success of these models and the progress made in the new projects would be crucial factors influencing earnings growth.

On the other hand, the competitive pressure would continue to hamper growth in profitability. The impending entry of Suzuki and the proposed product launches from the competitors would have a bearing on the company's performance.

Taking into account these factors, shareholders can consider diluting exposurein the stock.

Considering that the share price has recovered in recent months, shareholders can sell at least a portion of their holdings, as there appears limited scope for growth in earnings.

Fresh exposure can be considered after assessing the market response to models launched later this fiscal.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page