Beat the slump with new products: TVSE chief

Bharat Kumar

CHENNAI, Aug. 2

AFTER years of no budgetary sops, the hardware industry has had it easy for the last year or two. But just as duties were plummetting, the slowdown in the Indian economy -- not to mention the software horror story -- is discouraging computer hardware sales.

TVS Electronics has announced its second quarter results, and this quarter, its sales revenue went up to Rs 54.11 crore from Rs 52.31 crore the previous year, while net profit came down to Rs 25 lakh (Rs 35 lakh).

TVSE is engaged in the manufacture and sale of printers and uninterrupted power supply (UPS) systems, among other peripherals.

Following the announcement, Mr Gopal Srinivasan, Director, TVS-E, spoke to Business Line, giving his take on the IT hardware and peripherals industry and dwelling on TVS Finance's investments in Auctionindia.com and PC India. Excerpts from the interview.

In the quarter ended March this year, you had indicated that contract manufacturing was an area of focus for you, especially in the power supplies business. Does this mean that you are willing to sacrifice brand name for the sake of business?

Contract electronic manufacturing services had a growth rate of $100 billion in total revenues in 2000. By 2005, it is estimated to exceed $ 300 billion.

We see it as a way of providing value. You have to note that supply chain management skills, and not labour, make the difference here.

The products we manufacture are complete or near-complete, not components. A good analogy is the PC business. In the factory of a company that has huge capacity and can achieve economies of scale, it is common to find PC brands of the company's competitors.

Revenues from this business constitute about 15 per cent of our total revenues.

In the results announcement, you indicated that the economy is in a downswing. What is the outlook for this fiscal?

To meet or beat the previous year's profit before tax. The last two quarters for the PC industry - which is an indication of the hardware industry's fortunes in general - point southward.

In the first quarter, growth slumped from 46 per cent (last year) to 39 per cent, while in the second quarter, growth came down to 11 per cent from 16 per cent.

Since sales prospects have been dull, couldn't you have ensured that interest charges -- which rose to Rs 2.18 crore from Rs 1.59 crore -- were kept down?

The issue here is not so much as expenses than the income itself. In a better market, we would not have had a problem. Further, we had already invested in e-Shop, which is to soon launch Sprint, a CRM solution for retail shops.

How badly have receivables been hit?

The number of days has gone up by 10 days. Larger accounts pay up slower.

How do you intend to counter the effect of the slowdown?

Launch new products in the printers and UPS range. We will be looking seriously at cost-cutting, get people together in teams and map processes necessary to carry out their tasks, identify wastes in doing those and eliminate those wastes.

From the management side, several steps have been taken. For instance, employees' use of cell phones is restricted. If your monthly bill crosses Rs 2,500, your line is cut for the rest of the month.

When is the commercial launch of Sprint scheduled? Any estimates for revenues?

Early September. We now have 34 stores in Chennai using this solution on a Customer User Feel Test (CUFT) mode.

Based on their feedback, we have made as many as 600 changes. In addition to selling it to grocery stores and pharmacies, we are looking at the sale of the box to other business, such as logistics and ticketing services. It would be premature to comment on targets.

Is e-Shop going to be a separate company?

Yes. TVS-E will have investments in it.

Looking back at your investments in Auctionindia and PC India (the former is a marketplace for trading of equipment, while the latter provides ERP solutions for the textile industry), would you opt for them again, given the way the dotcom world and now software have fared?

Yes, I would. Auctionindia fits in with the overall group's direction. By the coming month, it should reach a break-even. In our view, that business goes against cartelisation among a set of buyers or sellers and provides a transparency to the trading process. As for PC India, our investment in it has gone up from 8.33 per cent to 18 per cent.