TVS gears up to rebuild market share

It has tied up with BMW to take on rivals, but the partnership is unlikely to yield results anytime soon

TVS Motor's ranking in the Indian two-wheeler market has been falling steadily. From being the third largest player in the country for years, it slid to the fourth spot behind Hero MotoCorp, Bajaj Auto and Honda in October 2011, and it has been languishing there since.

To boost its sagging business, the company took recourse in a revamped product portfolio. It launched several new models, including Phoenix in the 125 cc category. But the bikes have met with limited success. With sales continuing to head downwards, TVS has now tied-up with German premium two-wheeler manufacturer BMW Motorrad to launch bikes in the 250-500cc category.

The partnership with BMW will be a stepping stone for TVS to get into the premium segment (over 250 cc). Venu Srinivasan, chairman and managing director, TVS Motor, is bullish about the prospects. It will add the much-needed aspirational value to TVS bikes, says he.

There is no doubt the deal would help TVS to revamp its product line which has struggled in the face of heightened activity from Hero and Bajaj, but it is unlikely to benefit the company in the near-term as volume in the premium segment is never high.

However, everybody agrees the partnership with BMW is a recognition of the company's engineering and manufacturing capabilities as it was picked by BMW from among a dozen other players worldwide.

Strong foundation
TVS Motor was at the forefront of technological advances in the 1980s. The company has many firsts to its credit: it created history by launching seven new bikes in one day (no auto company in the world had attained that feat until then); launched easy-to-use moped in the 50cc category, which, till date, has no competition; and it became the first Indian two-wheeler company to set up a greenfield project in abroad (in Indonesia in 2005-06). However, today the two-wheeler arm of the $6-billion TVS group is on a different footing altogether.

 

It has been the worst performing company in the two-wheeler sector for many quarters and is loosing marker share to Honda. In 2012-13, TVS Motor saw a 7 per cent drop in sales, compared to two to three per cent for Hero and Bajaj. Sales at Honda, on the other hand, grew 30 per cent. Industry experts says it will be hard for TVS Motor to regain the ground lost to Honda as the gap between their market shares is widening. Honda has 18 per cent share, while TVS has 13 per cent.

Experts say TVS's dated product line is its biggest problem. The company has been slow in launching new products despite its engineering capabilities. An analyst, who has been tracking the company for over a decade, says despite the headstart that TVS had in research and development, it failed to keep its leadership position because of poor product positioning. The company has been solely focused on manufacturing. So its products, though high on quality, have fallen short on their appeal. While the collaboration with BMW will certainly be revenue- and- EBITDA-accretive for TVS, it is unlikely to have any significant impact on the positioning of its products, at least in the next three to four years.

Srinivasan says two models will be manufactured at its facility in Hosur on the Tamil Nadu-Karnataka border, one for TVS and the other for BMW. The products will be sold under different brands separately by the two companies. Reports quoting BMW officials say the German company will use its car showrooms to sell bikes manufactured at TVS's plant in India. For TVS, the tie-up would open up new markets and will strengthen its position in several export markets, says Srinivasan.

But the challenge will be to market its products. The company is entering a niche segment which is brand conscious and where products are owned for their aspirational value.

Advantage TVS
Still, the partnership will have several advantages for TVS's consumers in India. TVS products will have access to BMW technology at affordable cost. This will play a key role in India's cost-sensitive market, say analysts.

Analysts are also keen to see how TVS is going to place itself through this agreement-whether it wants to play in the mass market where numbers are high but margins are low or strengthen its presence in the niche segment where numbers are low but margins are high-as that would determine its future market position.

Yaresh Kothari, research analyst (automobile), Angel Broking, says almost 95 per cent of the motorcycle market in the country is for bikes in the sub-150cc category where the margins are not high. Since TVS is entering the 250cc and above category, where sales are low, its ranking by volume is unlikely to change in the near term.

IDFC Securities says the tie-up is positive for TVS as it can tap into BMW's proven high-end technology with minimal investment and strengthen its premium franchise. The deal would also provide higher-margin revenue stream from supplying motorcycles to BMW and open up doors for further outsourcing from BMW. The investment of ^20 million (Rs 143 crore) from TVS is minimal when compared to the revenue potential, technology access and savings on own investment in the premium segment, it says.

TVS Motor has joined hands with a new collaborator nearly 11 years after parting ways with Suzuki. The TVS-Suzuki partnership lasted for nearly 19 years till 2001. During the partnership, the company introduced a range of motorcycles, including Suzuki Samurai, Suzuki Shogun and Suzuki Fiero models.

After the split, few could resist writing off TVS. Analysts felt that the company would lag behind its rivals for want of technology, citing the failure of its bulky four-stroke scooter, Spectra. They wrote that insufficient presence in large northern markets and the perception of being a stodgy company will hit sales. Markets reflected this widespread negative sentiment. The TVS stock fell from a high of Rs 830 in 1999 to Rs 82 a day before the split in September 2001. Its market share, too, had shrunk from 22.8 per cent in 1998-99 to 16.5 per cent in 2000-01 as it failed to keep pace with product development.

But Srinivasan, who bridles at the sight of even a scrap of dirt on his factory floor, remained unperturbed. The company came out with TVS Victor in 2001 and turned around its fortunes in the marketplace.

TVS Motor reported an impressive growth in overall sales during April-August 2002,because its motorcycle segment which rose by 131 per cent to 2,77,017 units from 1,38,317 units in the year-ago period. TVS attributed the increase to its in-house created model Victor, a four stroke 110cc motorcycle India's first indigenously designed and manufactured motorcycle.

Earlier, in 1994, the company had launched India's first indigenous scooterette (sub 100cc variomatic), the TVS Scooty, which was also a major success. Now, it may be time for TVS to regain its strength once again.