TVS Disappoints, Outlook Gloomy Till Festive Season

TVS Motors announced their quarterly results on Friday, July 27, 2012, disappointing investors overall, although the figures announced were higher than analyst expectations, with shares dropping by 1.32 per cent post the result announcement. Of the major players in the two-wheeler industry, TVS Motors has been underperforming as compared to its peers. Over the last three months the YoY sales volume growth of the domestic two-wheelers has been 10.94 per cent, 11.17 per cent and 9.2 per cent. These figures have largely been largely due to the growth figures shown by Honda which are in the range of 45.53 per cent and 52.32 per cent. TVS Motors has shown relatively mute figures with YoY cumulative sales volume growth of -7.54 per cent, -5.33 per cent and 4.00 per cent for April, May and June 2012 respectively. 

For Q1FY13, while the total sales of TVS grew by 2.24 per cent to 5.47 lakh units, which is pretty much flat, motorcycles saw de-growth of a massive 8.04 per cent. The company managed to sell 2.06 lakh motorcycles in Q1FY13 as compared to 2.24 lakh in Q1FY12. Scooters saw marginal growth while two-wheeler exports were down by 21.79 per cent. The sluggishness seen in the volume growth over the last three months has been mirrored in the Q1FY13 financials announced by TVS Motors. 

The revenue of TVS Motors, saw a growth of 4.22 per cent, reaching Rs 1,819.75 crore in Q1FY13 from Rs 1,746.03 crore in Q1FY12. Considerable pressure was seen on the margins of the company with a reduction of 80 bps in the operating profit margin and 56 bps in the net profit margin. The operating profit margin and net profit margin of TVS reduced to 5.91 per cent and 2.81 per cent respectively for Q1FY13. The reduction has been a result of increasing investments in various domestic brands and in the company’s Indonesian subsidiary, with a planned investment towards increasing its dealer networks.

TVS Motors has been losing market share over the last year to Honda, which recently pushed it to the fourth place. Of all the major two-wheeler players, only Honda has been managing robustness in their performance. Looking at Honda’s performance, the potential for growth is evident but positioning their products is the key to capturing it. TVS Motors has announced a plan to launch an all new executive segment motorcycle in the second quarter of FY13. This would strengthen the company’s presence in the executive segment as currently the only TVS brand in the segment is Flame which hasn’t been able to do too good to the company. Models by Hero, Bajaj and Honda hold close to 90 per cent market share in this segment. TVS also announced a plan to launch a new scooter later in the year. This would strengthen the company’s product portfolio in the fast growing scooter segment.

Due to the overall slowdown in the automotive industry and due to the inability of the big two-wheeler players to gain any significant strength in performance, we expect the figures to remain gloomy till the festive season boosts sales. Till then we have a conservative outlook towards the sector. In the case of TVS, we would recommend investors to avoid the scrip till there are signs of growth seen in the new launches of the company.