'We Want To Be Profitable Leaders In The Industry

At present, the company commands a 18 per cent share in the two-wheeler market (and 25 per cent of the Indo-Japanese bikes market). At the moment, it is marketing three 100 cc motorcycle models, and the vastly popular Scooty. In the recently held Indian Engineering Trade Fair (IETF) in Delhi, it unveiled two new models of 140 cc bikes and two more models of Scooties.

The company's turnover for the first half of the year 1997-98 was Rs 392.20 crore. It expects to chalk up Rs 850 crore for the full year. Venu Srinivasan, managing director, TVS Suzuki, spoke to Vidya Viswanathan about how the company plans to fight for more market share and the other plans.

 

Q. Now that Hero Honda's new plant is ready to start production, are you going to face some pressures from that quarters?

A. We were all growing equally. We now have a 25 per cent market share in the Indo-Japanese bikes maket. We increased ourshare from 18 per cent to 25 per cent in just a year. The fight is certainly going to be tougher now because Hero Honda was facing capacity constraints and now their new factory is up and running. But we will also have to wait to see how their new models perform.

Q. Why is the two-wheeler market growth rate slowing down?

A. It was 14 per cent in March and 19 per cent in November. The cumulative growth rate would be 12 to 13 per cent. Our expectation is that it will be 9 to 10 per cent in 1997-98. We don't understand why. (The company has not revised the growth rates after the Budget. It maintains that it had taken into account a good boom in the rural market as well as a revival of the urban market in the second half of the (1997-98.)

Q. But 100 cc motorcycles are growing at over 30 per cent.

A. Yes. Because it has spread into rural areas. The January resurge was because of rural sales.

Q. Your margins are one of the highest in the industry because you have worked on costs. What are your benchmarks ?

A. Well, our stated goal is to be a highly profitable leader in the two wheeler industry. Hence our single focus has been on costs. We control the ratios of sales to fixed assets, sales per employee, and sale-to-inventory. We have also made our vendors who were small and weak in quality, into high-quality vendors, thus reducing waste. Our benchmarks are international benchmarks. Our material cost of sales to inventory (minus finished goods) ratio is about 13 to 14 now. We would like it to be 25. Our sales per employee is now Rs 25 lakh and our target is Rs 80 lakh. Our finished goods inventory is just 10 days of sales, so there is no pressing need for improvement there.

Q. Do your vehicles meet emission norms?

A. Yes, the 1997 norms, but not the year 2000 norms. By 2000, around 80 per cent of the two wheelers will have to become four stroke vehicles. The Shogun with a catalytic converter does meet the 2000 norms though. The convertor does increase the price.

But then the market for this model is not price sensitive.

Q. The market leader in the the four stroke segment is firmly entrenched ...

A. People don't buy strokes. They buy motor cycles and the riding experience and marketing makes all the difference. We have been selling 15,000 two stroke bikes a month. In my opinion it is more fun to drive two stroke bikes. The two stroke is also a simple engine and is hence easy to maintain and more reliable. The Samurai gives 57 to 58 kilometers to a litre while Honda's CD-100 SS gives 65 to 66 kpl. The more pep in the Samurai is worth the 6 kilometer per litre difference. A four stroke is very laboured.

Q. You are also going to make four stroke vehicles...

A. Yes, scooters to begin with. That is the only way to penetrate the four North Indian states of Punjab, Delhi, Haryana and Uttar Pradesh, where 75 per cent of the two wheelers sold are scooters. Our first indigenously designed four stroke scooter should roll out of our new plant in 1998. We will invest Rs 150 crore in the new plant which will have a capacity of 2.5 lakh scooters per annum. We will have 15 per cent of the geared scooter market in four years.

Q. How do you plan to do this? And why have to decided to get into scooters?

A. We can't compete on cost. We can't match Bajaj's raw material cost to sales ratio of 58 per cent. Our strength is in styling and features and we will carefully segment the market. We will be the most customer-responsive, two-wheeler company with the best warranty policy. If the customer is unhappy, our policy will be to change it without asking questions. We will be 25 per cent of the two wheeler market by 2002 from 18 per cent this year. Our realisation per vehicle will also increase. Currently, we sell 3.6 lakh vehicles at Rs 15,000 each. We will sell the 2.5 lakh vehicles at an average of Rs 30,000 each.

Q. How will these projects be financed?

A. Internal accruals and an issue of non-convertible debentures in August or September this year. Also over the next five years we will invest a further Rs 400 crore.

Q. Why are you borrowing in the domestic market while you could borrow overseas at lower rates?

A. Because we expect the rupee to depreciate. It should reduce by 7 per cent a year to keep India competitive.

Q. How do you increase shareholder value?

A. By increasing return on networth and by keeping the debt to equity ratio low. Ours is about 0.3. I think 0.5 is a balance and 0.7 is sustainable in the short run. A higher debt to equity ratio will endanger a company. One depress-ion will wipe out a huge chunk of margins.

Q. What is TVS's target return on net worth?

A. Currently, it is about 50 per cent. In the long run 30 to 35 per cent would be sustainable and this is keeping in mind the current cost of money. But at TVS we are more concerned about the return on capital employed (pre-tax) and would like it to be 55 per cent.