 "Suresh Krishna")
The over hundred-year-old TVS group is set for a makeover with Suresh Krishna taking over as its new chairman last month. The 78-year-old is gearing up to create a new roadmap for the group companies to meet the demands of the changing business environment in the country. The foremost task, he says, is to achieve aggressive growth targets, while improving manufacturing, distribution and logistics operations.
The target is to double the revenue of the holding company, TVS & Sons, from the current Rs 6,000 crore over the next three years, while growing the other companies at a steady pace of 20-30 per cent annually. A large part of this growth is expected to be driven by manufacturing, though, so far, non-manufacturing operations, especially trading, account for the bulk of the group's $6.5 billion turnover.
TVS is largely a services company with interests in automobiles and finance. Krishna hopes to change this by rapidly expanding overseas and listing many of the privately-held companies. This, however, could be a challenge because such a step would require the approval of all family members who hold the management reins in TVS. "I think it will happen slowly," admits Krishna.
He is making quick progress on taking the group global, though. "We are expanding in China. We have been supplying automobile components to customers in America, so there is synergy in doing business in China," he says.
Those who know the chairman say he is driven by the idea of building an Indian multinational. As its head, he set up a manufacturing facility for Sundram Fasteners, the group's auto components company. It was also under him that the company became a supplier to General Motors. In addition to expanding abroad, Krishna has also been the force behind roping in private equity investments for TVS Logistics. Goldman Sachs invested Rs 100 crore in the company in 2008 and another Rs 242 crore in 2012.
Krishna expects more foreign investments from automobile companies in India because of the country's low manufacturing costs. "Export of auto components has been growing exponentially, and it is something that you can ride on for quite some time," he says.
"If international automotive businesses want to be more and more competitive, they will have to find sources that are also competitive." But not everything will focus on exports. "We will also look at catering to the growing domestic market, acquisitions outside India and improving logistics," says Krishna. So acquisitions overseas will interest the company. TVS Logistics is one of the companies for which foreign acquisitions have done extraordinarily well in terms of reaching out to customers and improving the company's transport and warehousing requirements.
For investors, the returns have been good over the past five years. An analyst at a domestic brokerage says there is respect for the company's engineering and R&D capabilities. He says investors in Sundaram Clayton, TVS Srichakra and TVS Motors, the listed group companies, have seen their wealth grow five to seven times over the last two years.
"It is one of the few groups that have enriched shareholders over the last two to three years. While there might not be much upside in the short to medium term since valuations are no longer cheap, shareholders with a long term view can look at the shares," says G Chokkalingam, founder and managing director, Equinomics Research & Advisory.
Investors, however, would like to see better valuations for the firms with cross holdings. For example, Sundaram Clayton has a 57 per cent stake in TVS Motor which is valued at Rs 7,234 crore. Excluding the base business valuation which is 15-20 per cent of enterprise value, implied holding company discount for its stake in TVS is significantly high at 55-58 per cent, points out Navin Matta of HDFC Securities in a report.
Also, analysts say that investors prefer a simple rather than a complex holding structure. "Earlier, these cross holdings were justified for helping to avoid takeovers," says an analyst. "Group support on branding, marketing and funding also helped. Now given that each of the groups have become larger entities, there may not be a need for such cross holdings."
