The Hindu Business Line : High material costs drag down TVS Motor Q3 net

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Chennai Jan. 25 TVS Motor Company has reported a net profit of Rs 11.46 crore for the third quarter of the current fiscal, nearly a third of the Rs 31.06 crore in the corresponding period last year.

The company has attributed the dip in profits to high material costs, especially steel, aluminium, rubber and copper, which impacted the margins substantially.

Cost of raw materials as a percentage of sales for the quarter works out to 73.1 per cent against 69.9 per cent in the same period last year.

The company recorded a growth of 8 per cent and reported a turnover of Rs 952.98 crore for the third quarter ended December 2006 against Rs 883.38 crore recorded for the corresponding quarter of the previous year.

Brand building

During the quarter under reference, the company invested heavily in the brands as a part of strategic brand building exercise, according to a press release from the company.

To avoid erosion in the value of the brands, it refrained from the industry practice of offering discounts on products, especially in the festival season. Consequently, due to intense competition, its two-wheeler sales recorded a slow growth. However, the retail sales were far more robust and stock of motorcycles with the trade has been reduced by 10 days, the release says.

New projects progressing

The proposed three new projects namely the three-wheeler, Himachal Pradesh and Indonesian ventures are progressing as per the schedule, it says.

On the future outlook, the release says that in line with the overall business plan of 2007-08, it expects to grow around 20 per cent. The Himachal Pradesh plant, with an annual capacity of 3 lakh units, is nearing completion and will be ready for commercial production by April.

The annual capacity can be increased to 5 lakh units with nominal additional expenditure. This will help the company to improve its delivery time to the vast dealer network already established in North India and increase sales. The investment in this plant is estimated at Rs 120 crore.

The three-wheeler plant will have a capacity of one lakh units per annum and will roll out modern three-wheelers early next financial year. The investment plan for this project is Rs 115 crore.

The Indonesian plant will commence production with the roll out of `Bebek' form of two-wheelers, which constitute 80 per cent of the total two-wheelers sold in Indonesia.

In phase I, the plant will have a capacity of 3 lakh units and in phase II, this will be extended to 5 lakh units. The investment planned in phase 1 is $45 million.