I am cautiously optimistic about demand revival in H2: TVS Motor CEO

While the company expects to outdo the industry on domestic sales and exports, its capex in the current year is likely to come down substantially

The management at TVS Motor has said that it is cautiously optimistic about demand revival in the second half of the year, especially with the rural market improving. The company expects its growth will be better than the industry's in both, the domestic and export markets.

The company's capex for 2020-21, would be around Rs 300 crore, as against Rs 719 core in 2019-20. 

Covid impact

For the quarter ended March 31, 2020, the two-wheeler industry continued to decline due to lower economic growth and lack of visibility and pandemic created by Covid-19, said K N Radhakrishnan, TVS Motor's President, CEO & Additional Whole-Time Director. TVS Motor's two-wheeler sales declined 13.8 per cent due to consequent planned rationalisation of BS-IV stocks.

"Afther the initial BS-VI ramp up, we had some challenges due to Covid in January and February," he said.

The company's capacity utilisation in two-wheelers is quite low as of now, while it was 60-62 per cent a year ago.

About 70 per cent of the dealers and consumers have opened up. While they are not fully operational, they definitely will in June, Radhakrishnan added.

On BS-VI migration, he said nearly 85 per cent of the domestic sales in Q4 is from BS-VI vehicles. Dealers have retailed more than 100,000 such vehicles in the three months to March. "We have consistently maintained, restocked the trade, and this has helped us retail the BS VI inventory," said Radhakrishnan during an investor call.

There was a small volume of BS-IV stock with retail outlets that needed special support, so an amount of Rs 22 crore was given as an additional incentive. This has been reduced from the revenue.

In the international market, Radhakrishnan said the company has grown faster than the industry, both in two-wheelers and three-wheelers. Two-wheeler exports during the quarter grew by 3.6  per cent. Three-wheeler business in the international market, was up 2.6  per cent. Company's Indonesian arm PT TVS achieved a positive operating PBT. During the year as a whole, the company posted a  positive $0.5 million EBITDA compared to last year's EBITDA loss of $3 million.

Outlook

Going forward, while it would be difficult to put a number on growth, the lockdown has caused a sharp decline in the first quarter. The company expects this will partially get offset in Q2 with a normal monsoon and consequent improvement in the rural economy, said Radhakrishnan, adding that domestic markets are opening up.

"We feel that more and more two-wheelers will have an opportunity because self-ownership is likely to gain momentum at this point of time. But I cannot quantify data at this point of time," he told analysts.

Given the social distancing norms, two- and three-wheelers are likely to witness healthy growth. Increased penetration of retail financing is likely to help. The series of relief measures taken by union government will also help liquidity, and that will have definitely an effect in the medium and long term. 

"We are hoping that the government will also consider GST reduction," said Radhakrishnan.

TVS expect to grow ahead of the industry, both in domestic and international markets.

Overall, Radhakrishnan feels that in the September quarter, the company will see consolidation. He is cautiously optimistic about the second half, though he expects premium products (Apache and Ntorq) to do better than other segments.

Analysts from Emkay Global Financial Services Ltd reduced the FY21 volume estimate for the company by 18 per cent to 2.4 million units, due to the lockdown. However, Emkay has broadly retained the FY22 volume forecast at 3.3 million units. It is expecting recovery from the second half of current fiscal, led by low base, pent-up demand and better rural sentiment.

Many global markets are slowly opening up. Currently oil prices are around $32, which is slowly going up. Once it comes around $40, Nigeria kind of markets, it is not excpecting any adverse impact. In the next one or two months there will be slow and steady increase in export, he said.