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Thread: TVS Motor: Targets too unrealistic?

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    Default TVS Motor: Targets too unrealistic?

    TVS Motor Co. Ltd’s new models and volume growth have got the markets excited. Its two-wheeler volumes rose 36% on a year-on-year basis last month, while for the quarter, sales growth stood at 31%. The TVS stock has risen around 21% since 21 June.

    The company recently launched two new brands—Jive (motorcycle) and Wego (scooter). It makes around 7,000 units of Jive and 3,000 units of Wego every month. However, according to reports, the management is confident of selling nearly 15,000-20,000 units of each by the festive season later this year. This seems challenging, considering that in the past, it hasn’t been able to fully capitalize on new models. For example, after around four years of its launch, its premium segment Apache bike sells around 18,000 units every month. Bajaj Auto Ltd’s Pulsar, in the same segment, sells around 50,000 units a month. Some analysts feel that sales of 9,000-10,000 units of Jive every month is a more realistic target. H.S. Goindi, president, marketing, TVS Motor, adds, “Our foray into new overseas markets will see exports jump by 50% to around 2.5 lakh units in fiscal 2011.”

    The sharp rise in TVS’ valuation, however, suggests that expectations are running high. Rising volumes, could, nevertheless, lead to a sharp rise in profitability, especially since the firm operates at low profit margins and leverage is relatively high. In fiscal 2010, TVS’ operating profit margin was 6.3%, while Hero Honda Motors Ltd and Bajaj Auto reported margins of 17.5% and 22%, respectively. Apart from lower economies of scale, TVS’ margins are lower because of a high proportion of sales from mopeds and scooters.

    With the new product launch, motorcycles will account for a larger proportion of sales. Besides, sales of three-wheelers, which operate on much higher margins, have risen to 3,003 units last month from 810 units in the year-ago period. Analysts say that volume growth and a more favourable product mix can lead to a 2.5 percentage points rise in operating margin.

    Even so, some analysts are cautious. “We would like to wait for another quarter to see how its new products fare in the market,” an analyst with a Mumbai-based brokerage said.

    Source: TVS Motor: will it sustain investor fancy? | Mint Money

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