The Hindu Business Line : TVS Motor: Buy

LONG-TERM investors may consider equity investment in TVS Motor at prevailing levels. After a slowdown in motorcycle sales volume, the success of new model launches has helped the company log increased sales volume in recent months. With steel prices softening, the company appears to be in a position to record improved performance in the forthcoming quarters.

After the resounding success of the four-stroke motorcycle — Victor — the subsequent motorcycle offerings in recent times have not quite provided the required impetus to sustain a reasonable growth rate in earnings. Be it the Centra, or the upgraded version of the Fiero or StaR, the company failed to capture the attention of motorcycle buyers. This resulted in a sagging growth rate and deterioration in financial performance. For the year ended March 2005, turnover increased by a modest 2 cent to Rs 2,876 crore and net profit dropped marginally Rs 137.6 crore from Rs 138 crore. Apart from the slowdown in motorcycle offtake, the company also had to contend with growing competitive pressure and pressure on realisations. The firm trend in price of key inputs, steel in particular, did not help the cause either.

Though the company had a presence in the executive price segment of the motorcycle market, the lack of presence in the fast growing entry level market as well as the premium end of the spectrum added to the woes. To address these issues, the company has unleashed a series of new models in recent months. The launch of upgraded versions of the entry level bike — StaR and a new variant of the Victor GLX model called Victor Edge appears to have provided the necessary impetus to the growth.

The market response to the new launches appears encouraging and this is also borne out by the growing motorcycle sales volume in the recent months. For January 2005, the motorcycle sales grew by 25 per cent in comparison to the same period in the previous year.

The positive impact of the pick-up in motorcycle sales is already visible in the earnings for the latest quarter.

For the quarter ended December 2005, turnover increased by 8 per cent and post-tax earnings by 10 per cent. With the company having launched a new Apache targeted at the premium end of the market, it now has a better presence across all segments of the motorcycle market.

The recently launched Scooty Pep+ is also faring well. The company would get into a higher growth trajectory if Apache also turns out to be a hit.The company is setting up a production unit in Indonesia and one in Himachal Pradesh for three-wheelers. These projects should lend some stability to earnings stream.

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