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B. Krishnakumar

AFTER posting a scorching rate of growth in performance in the recent quarters, TVS Motor has come up with a relatively modest 20 per cent rise in post-tax earnings for the quarter ended September 2003. Turnover during this period increased by about 8 per cent to Rs 764.55 crore.

Apart from the success of Victor, much of the growth in turnover appears to have been driven by the pick-up in sales volume of recent launches - Scooty Pep and Fiero F2. The operating profit margin at 10 per cent was marginally better than 9.2 per cent achieved in the second quarter of the previous fiscal. The savings on the raw material consumption front has played a key role in recording improved profit margin. The capacity expansion projects undertaken by the company has inflated the depreciation charge to Rs 19 crore from Rs 15.23 crore.

The post-tax earnings increased by about 20 per cent to Rs 36.98 crore. Much of the growth in earnings has been driven by the sharp increase in income from other sources to Rs 9.07 crore from Rs 3.73 crore.

While the performance of the second quarter may appear positive, the slowdown in motorcycle sales is a cause for concern. For the month of September 2003, TVS Motor had to contend with a 7 per cent drop in total motorcycle sales in relation to the same period previous year. On the other hand, Bajaj recorded a 26 per cent increase and Hero Honda managed 18 per cent improvement in motorcycle sales during this period.

Going forward, the success of new model launches would be the critical factor driving earnings growth for TVS Motor. The company has already launched upgraded variants of Victor, Fiero and Scooty. More new launches are in the offing. However, competitors such as Bajaj and Hero Honda have also lined up new model launches, which could foster competitive pressure in the industry.

In a recent move, the TVS Motor has decided to initiate a stock split by reducing the face value of its shares from Rs 10 to Re 1. Besides, the engine components division of Lakshmi Auto Components is proposed to be merged with TVS Motor. This move would have positive implications for TVS Motor as Lakshmi Auto Components caters predominantly to the requirements of the former.

While the stock split and merger proposal would keep the stock market interest alive in the TVS Motor stock, the pick-up in motorcycle sales volume would be a more critical determinant of stock valuation from a long-term perspective.

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