Despite TVS Motor’s production was hit due to heavy rain and flood in Chennai, the company managed to perform well in the December 2015 quarter. The country’s third largest two-wheeler firm reported a 19.4 per cent growth at Rs 107.7 crore, against Rs 90.2 crore a year ago. Revenue increased 11 per cent to Rs 2,940 crore. TVS Motor Chief Financial Officer S G Murali speaks to T E Narasimhan about the factors that helped TVS regain market share. Edited excerpts:
What helped TVS Motor during the December quarter?
We are focusing on brand and products. Jupiter (in the scooter segment), for example, is selling around 50,000 units a month. It has now become a mega brand.
TVS is the only company which is present in all the three segments – mopeds, scooters and motorycles – in the country. All this helped TVS regain its market share and achieve profitable quality growth.
Can the momentum be sustained considering the two-wheeler segment is not growing much?
Certainly, we should do that. When the industry was going through a tough phase, TVS grew and gained market share. The two new products, 110 cc Victor (for executive segment) and new 200 cc Apache, are very important and they should help us improve market share.
We want to improve our margins also. Currently, our Ebitda (earning before interest, tax, depreciation and amortisation) margin is about 7.5 per cent, and our target is to take it to double digits in the next two years.
Our focus will be on improving revenue and, then, bringing down fixed cost of sale and, consistently increasing portfolio quality.
What sort of growth are you looking at?
The two-wheeler segment, in longer term, has grown by eight to 10 per cent CAGR (compound annual growth rate). The fundamentals have not changed. Whenever the industry remains static or declines, it has grown 25-30 per cent the next few years.
The government has started investing in infrastructure, the Pay Commission will put extra money into the pockets of people. Last year, monsoon was bad but the second monsoon was helpful in south India. The region suffered due to lack of monsoon in the past two-three years, current monsoon brought lot of rains. The service sector is growing. All these will increase the income level and people’s willingness to buy two-wheelers.
In the medium term (next three years), the industry might grow eight to 10 per cent. TVS Motor is targetting to improve market share from 14 per cent to 18 per cent. To achieve this, the company has to grow twice the industry’s rate of growth.
We believe the market still continues to be driven by 100-110 cc. So, we need to have product in that space. Jupiter and Victor will help us address the demand in this segment.
How are exports growing?
In value terms, it contributes around 20-25 per cent and it is going to be an important growth engine. The company is focusing on African, Asian and Latin American markets. Africa is currently going through tough phase, as low crude oil and commodity prices have weaken the region's economy. It has resulted in restricted availability of dollar, which, in turn, devalued the local currency. But, things in the region will stablise. It is a continent waiting to explore.
The Indonesian subsidiary is considered to be one of the key drivers for TVS Motor to tap global markets. How is the performance of this subsidiary and when do you expect a break-even?
Next year is the target for break-even. We launched Apache 200 cc and other products. We are hoping that new products will help the company cater to both domestic and neighbouring countries (of Indonesia).
What are your capital expenditure plans?
About Rs 350 crore for 2015-16 for capacity expansion and products, and in 2016-17, the company would invest around Rs 300 crore on new products and capacity expansion.
What helped TVS Motor during the December quarter?
We are focusing on brand and products. Jupiter (in the scooter segment), for example, is selling around 50,000 units a month. It has now become a mega brand.
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Similarly, we are selling around 30,000 units of Apache a month in the premium segment. We are also pushing exports.
TVS is the only company which is present in all the three segments – mopeds, scooters and motorycles – in the country. All this helped TVS regain its market share and achieve profitable quality growth.
Can the momentum be sustained considering the two-wheeler segment is not growing much?
Certainly, we should do that. When the industry was going through a tough phase, TVS grew and gained market share. The two new products, 110 cc Victor (for executive segment) and new 200 cc Apache, are very important and they should help us improve market share.
We want to improve our margins also. Currently, our Ebitda (earning before interest, tax, depreciation and amortisation) margin is about 7.5 per cent, and our target is to take it to double digits in the next two years.
Our focus will be on improving revenue and, then, bringing down fixed cost of sale and, consistently increasing portfolio quality.
What sort of growth are you looking at?
The two-wheeler segment, in longer term, has grown by eight to 10 per cent CAGR (compound annual growth rate). The fundamentals have not changed. Whenever the industry remains static or declines, it has grown 25-30 per cent the next few years.
The government has started investing in infrastructure, the Pay Commission will put extra money into the pockets of people. Last year, monsoon was bad but the second monsoon was helpful in south India. The region suffered due to lack of monsoon in the past two-three years, current monsoon brought lot of rains. The service sector is growing. All these will increase the income level and people’s willingness to buy two-wheelers.
In the medium term (next three years), the industry might grow eight to 10 per cent. TVS Motor is targetting to improve market share from 14 per cent to 18 per cent. To achieve this, the company has to grow twice the industry’s rate of growth.
We believe the market still continues to be driven by 100-110 cc. So, we need to have product in that space. Jupiter and Victor will help us address the demand in this segment.
How are exports growing?
In value terms, it contributes around 20-25 per cent and it is going to be an important growth engine. The company is focusing on African, Asian and Latin American markets. Africa is currently going through tough phase, as low crude oil and commodity prices have weaken the region's economy. It has resulted in restricted availability of dollar, which, in turn, devalued the local currency. But, things in the region will stablise. It is a continent waiting to explore.
The Indonesian subsidiary is considered to be one of the key drivers for TVS Motor to tap global markets. How is the performance of this subsidiary and when do you expect a break-even?
Next year is the target for break-even. We launched Apache 200 cc and other products. We are hoping that new products will help the company cater to both domestic and neighbouring countries (of Indonesia).
What are your capital expenditure plans?
About Rs 350 crore for 2015-16 for capacity expansion and products, and in 2016-17, the company would invest around Rs 300 crore on new products and capacity expansion.