TVS Motor: Will it, won't it?

New Delhi, Apr 2: The two-wheeler maker has surpassed Hero Honda, country's biggest, by clocking a motorcycle sales growth of 18.79 per cent during the year against the leader's 13.72 per cent.

TVS Motor sold 8.06 lakh units during the year as against 6.79 lakh motorcycles in 2004-05.

In comparison, Hero Honda sold 29.8 lakh units in 2005-06.

However, it was industry No 2 Bajaj Auto that registered the fastest growth among the big three at 32 per cent.

TVS Motors attributes the growth to launch of new motorcycle models like the Apache, Star and new variants of existing models like Victor.

The company had earlier stated that it expected to close the current financial year with a growth of 18 per cent in motorcycle sales.

But the million dollar question is, will the company be able to post a positive net profit riding on the back of the sales growth? The growth of course raises its hopes of stabilising the net profit which has continued to dip in recent times.

During 2004-05, TVS Motors reported a marginal rise of 2 per cent in net sales to Rs 2,875 crore over 2003-04, but net profit suffered a fall though by just 0.7 per cent to Rs 137 crore. This happened despite earnings being supported by exports, which grew 75 per cent to Rs 122 crore.

During the year, the company's two-wheeler sales rose just 1.7 per cent to 11.6 lakh vehicles. Sales of the motorcycle segment had dipped by 4 per cent to 6.7 lakh units, due to tough competition from the rivals.

In comparison, for the first nine months ended December 2005, the company reported an 11 per cent increase in net sales to Rs 2,157 crore over the same period in the previous year.

Even so, net profits have continued to fall, this time by 2 per cent to Rs 88 crore.

The total two wheelers sold during the nine month period ended December 2005 stood at 9.9 lakh units, recording a growth of 14 per cent over the same period in the previous year.

TVS Motors motorcycle sales are on the rise in recent months on the back of success of new models.

During 2004-05, the company successfully launched several new products. The launches have infact contributed significantly to growth during the current financial year as well. During the first half of 05-06, TVS Motor rolled out a new 150 cc motorcycle 'Apache' in the premium segment as well as two entry level bikes '125 cc Victor Edge' and '100 cc Star City'. It also launched a '90 cc scooty Pep Plus'.

The company has also announced setting up two manufacturing facilities in Indonesia and Himachal Pradesh at an expense of Rs 315 crore.

Both projects are expected to commence production by the end of 2006.

Going forward, the road for TVS Motor appears to be bumpy. The automobile industry is the most competitive industry with competition on all fronts viz. pricing, innovations, supply chain, efficiency etc.

The situation is further aggravated by rise in the cost of raw materials like steel, rubber, plastics etc, as the company is not able to increase the selling price in proportion, thereby affecting the net profit growth. This is evident from the fact that though in FY04 sales grew by 4 per cent, operating profit fell by 1 per cent.

Though the raw material prices have cooled off from their peaks, margins are expected to remain under pressure in near future.

UNI