TVS margins concern experts amid muted demand, increasing regulatory costs

Earlier this week, TVS's chief executive officer said the firm would grow better in 2019-20

Despite TVS Motor saying it expects better growth in 2019-20, analysts have concerns.

The automobile maker says it expects an improvement in its margin, on the back of softer commodity prices and cost reduction, beside new product launches boosting growth in the domestic and export markets. However, analysts are raising concerns. These are related to the incremental cost with implementation of the BS-VI emission norms, in a muted demand environment, with tough competition. A higher monsoon deficit in some pockets of the western and southern regions, coupled with lower rabi sowing, is expected to impact rural demand, they say. 

Earlier this week, K N Radhakrishnan, chief executive officer, said the firm would grow better in 2019-20. He pointed to predictions of a near-normal monsoon, an improved economy and a rise in disposable incomes, among others. 

He said they expected demand to be slower for the first quarter (April-June) of this financial year, due to market volatility. However, the next two quarters should be good, with better demand from the festival season. The industry is expected to be growing at a single digit but TVS Motor expects to do better, he’d said. 

They also have hopes on the industry’s request for a cut in the Goods and Services Tax rate from 28 per cent to 18 per cent for the sector, Radhakrishnan told analysts.  The scooter segment, after a slide in the recent past, is expected to see uptake. This and new launches are expected to help in better growth. TVS is also expected to launch another motorcycle, under a tie-up with BMW.

The plan is Rs 650 crore in capital expenditure (capex) in 2019-20; it could also launch an electric vehicle. The spending will be in new products and technologies, compliance on BS-VI and others. The company will invest Rs 250 crore in its subsidiaries in FY20. The company has been outperforming the domestic two-wheeler industry for four years. The management says it expects to sustain higher volumes and margin, from the success of new products and improving brand equity. 

The company has gained market share from 14.6 per cent to 15.4 per cent at the end of 2019-20. Despite the industry challenges, said TVS Motor, it was able to mark double-digit growth.