Volume growth, product mix boost TVS margins

The company had overall sales volume of 5.63 lakh for the March quarter

On the back of a 13 per cent jump in quarterly volumes and 7.4 per cent increase in realisations, TVS Motor Company recorded a 21 per cent growth in standalone sales to Rs 2,156 crore for the March 2014 quarter. Within this growth in volumes, exports stood out growing 33 per cent, while scooter sales, riding on the success of Jupiter launched in December last year, grew 38 per cent year-on-year. The company had overall sales volume of 563,000 for the March quarter. On a consolidated basis for FY14, sales grew by 11.5 per cent to Rs 8,379 crore.

Analysts say the results were broadly in line to slightly better especially given the margin performance. Ebitda margins were up 115 basis points to 6.4 per cent in the quarter. Margin improvement was aided by better product mix (exports, scooters and three wheelers), higher operating leverage as well as cost rationalisation benefits. Jupiter has been a success registering volumes to the tune of 100,000 units.

Had it not been for the dealer compensation (after excise duty cut in February) to the tune of Rs 11 crore in the quarter, margins would have looked much better at seven per cent, according to an analyst at a domestic brokerage. The company swung from loss in the year ago quarter at Rs 32 crore to a profit of Rs 52 crore in the March quarter. Last year, as well as in the March 2014 quarter, TVS has reported exceptional items , adjusted for which analysts say profit is up 41 per cent to Rs 82 crore. While some of the improvements have already been reflected in the stock price which has doubled over the year and is up 25 per cent over the last quarter, analysts believe to move up further the company has to sustain its volume run-rate especially for new products. For example, while its Phoenix 125cc bike had a good start post its launch, it was not able to sustain the momentum.

Although a marginal contributor, its Indonesian subsidiary continues to report losses at the Ebitda, and is unlikely to turnaround anytime soon.

The company has lined up two new products to be launched over the next three months. These are the new TVS StaR City+ motorcycle and the TVS Zest Scooty. This is likely to be followed by an executive motorcycle and a higher powered bike in the second half of FY15. The company is also launching a refreshed version of its scooter, Wego.

On the back of these new launches and sales of the existing portfolio, the company expects to boost its market share in the two-wheeler space from the current 12 per cent to 14-14.5 per cent in the current financial year.

The stock was up six per cent to Rs 92.25 on Tuesday.