Two-wheeler maker TVS Motor Company may see further dilution in its margin in coming quarters due to adverse product mix and increase in competition, feel analysts.
"Declining contribution of three-wheelers and scooters in the overall product mix coupled with rising competition is likely to pressurise the company's operating margin going ahead. Nonetheless, weakening of commodity prices will provide some comfort on the margin front. We expect the company's margin to decline by 40 basis points in 2012-13," Yaresh Kothari, analyst with Angel Broking, said in his note to clients on Thursday.
The company reported 41% year-on-year decline in its second quarter net profit as sales volume remained muted in the uncertain macro-economic environment. The EBITDA (earnings before interest, tax, depreciation and amortisation) margin was at 6.1%, declining by 97 basis points from a year ago.
TVS' top management expects its margin to improve led by higher volume and benign raw material prices. "We believe that margins will remain under pressure, given the weak domestic demand scenario and increasing competition," Kothari said.
The brokerage believes that success of new launches will be key to drive the company's sales volume. TVS is expected to launch a bike in the executive segment, two scooters and a diesel three-wheeler in 2013-14.
At 11:52 AM, TVS' shares were traded at Rs 38.85 on the National Stock Exchange, up 0.1% from previous close.