Good monsoon fuels TVS Motor's growth ambitions

A good monsoon and the Pay Commission bonanza are fuelling TVS Motor’s growth ambitions. The two-wheeler maker is looking past short-term glitches to set new targets for itself: a market share of 15 per cent from 13 per cent by the end of this fiscal and 18 per cent by 2018.

For TVS, this is crucial to maintaining its position as the third largest player in the industry, which is expected to grow by 10 per cent in 2016-17.

The company plans to refresh its product line-up to lend a fresh edge to its offerings. K N Radhakrishnan, president & CEO, TVS Motors, says, “Over Rs 400 crore will be invested this fiscal in developing new products and adding new capacity.”

To attract customers, the company is not only betting on its best-sellers, TVS Victor and Jupiter, which are market leaders in their segments, but also trying to climb up the value chain with offerings in the luxury segment.

TVS has tied up with BMW Motorrad to develop a new series of motorcycles in the 200cc–500cc category. The two companies will jointly invest ^20 million in the project. The partnership’s first two-wheeler, described as “a one-cylinder roadster in the extraordinary design of a stunt bike”,  will be rolled out from TVS’s Hosur factory later this year.

From motorcycles and scooters to mopeds and three-wheelers, TVS has been focused on diversifying its business and launching new products to boost growth. However, none of these products will be launched during the festival season so as to ensure sales of its existing products are not affected.

Analysts have given their thumbs to the company’s growth strategy. “We believe that based on its launches and strong growth in two-wheelers, TVS Motors would continue to come up with robust figures (evident from its leading volume growth in Q1 FY17),” says Anand Rathi Research in a report.

However, one concern for TVS has been its low EBITDA (earnings before income, taxation, depreciation and amortisation margins). In the June quarter, it reported an EBITDA margin of seven, despite higher income and low taxes.

Ambrish Mishra says, “While TVS Motor’s volume performance has been healthy, margins remain subdued and inconsistent, which is one of its major concerns. While the street’s margin expectations have increased considerably over the past few quarters (driven by volume growth and positive management commentary), we see a likely downside risk to the same, going forward, especially if the industry volume growth momentum does not gain good strength.”

Radhakrishnan, however, says the low EBITDA margin is because of the company’s focus on growing its market share rather than profit.  “We expect our EBITDA margin to reach double digit in the next two to three years. We are focussed more on market share because we want our distribution partners to grow as well.”

The company’s stock price is likely to remain subdued. “We see a limited upside from current levels, given the sharp run up in TVS stock prices, increasing competition, and continued concerns on the margin side,” says Mishra.