A result to worry:
TVS Motor Company Ltd posted a net profit of Rs 7.55 crore for the quarter ended June 30, 2007, against Rs 21.26 crore in the same month last year. Total income for the April-June period was Rs 801.56 crore compared with Rs 939.62 crore in the quarter ended June 30, 2006.
TVS observed pressure on operating margin, which fell 207 basis points to 2.44%. This and the drop in sales have contributed to the fall in earnings of the company. Earnings per share (EPS) reduced to Rs0.32 from Rs0.09.
TVS and its rivals:
TVS sold 320,178 units in the quarter, a 15 percent fall from the same period a year before, and the sharpest decline compared to rivals Hero Honda Motors and Bajaj Auto.Market leader Hero Honda earlier reported a less-than-expected 20 percent fall in net profit to Rs190 crore, while Bajaj reported a worse-than-expected 18 percent fall to 226 crore. Shares of the TVS motors closed at Rs 59.65, down 3.89 per cent on the BSE. They trade at 7.6 times forecast earnings, compared to 14.5 times for Hero Honda and 16 times for Bajaj.
Reasons cited for the dip in sales:
TVS has attributed the decline in sales to, reduced availability of finance, increased cost and stricter lending norms exercised by the financiers. Higher material costs including steel, aluminium and rubber have also impacted margins. Higher interest costs were on behalf of increased level of borrowing for the new projects.
Guidance:
The company believes pressure on margins will continue in the first half of 2007/08 due to high cost of raw-material and intense competitive activity,” TVS said in a statement.
“In the second half of the year, the company expects pressure to ease with the launch of new products and other (cost-cutting) initiatives,” TVS said.
Happenings in the quarter:
* During the quarter TVS relaunched an upgraded version of the Apache, christened the Apache RTR, in the premium segment and stopped selling 110cc victor due to slump in sales of the product.
* TVS had cut production by 5,000 units for June and July
* TVS opened a new two-wheeler plant in Himachal Pradesh in April, and commenced operations at PT TVS Motor Co. Indonesia, a wholly-owned unit, in July with an annual capacity of 300,000 units.
Planned launches:
TVS said it would launch two new motorcycles in the executive segment, a new variant of Star, its 100 cc entry-level bike, as well as its first motorised three-wheeler. The launch of new star variant is expected during the coming festival season. The executive motorcycle which will be launched in the second half of this year. TVS’s three-wheeler plant will make 90,000 units annually. Three-wheelers enjoy higher margins than motorbikes, which compete in a highly price-sensitive market. Totally TVS Motor will launch at least six to seven products during the current fiscal,an electric bike,a 100cc scooter, two new motorcycles in the executive category, two high-end Apache models. TVS is confident that this motorcycle will redefine the segment by setting a new benchmark in the industry in terms of its technology, performance and style. TVS Motor Company also plans to launch an electric bike at the end of this year and introduce two to three variants next year. TVS is also in the process of developing bigger engine capacity bikes to match competition.