The euphoria at Chennai-based TVS Motor over an encouraging rise in market share in the first quarter of 2014-15 was tempered by a financial performance that was below expectations. While its share in the two-wheeler market went up for the first time in two years from 12.1 per cent to 12.6 per cent, the company's profit after tax disappointed analysts by being a big 30 per cent away from estimates.

The company recorded growth of 22 per cent in the first quarter this year, selling 560,000 two-wheelers compared to 460,000 in the same period last year. Domestic sales grew 19 per cent against 14 per cent reported by the industry.

But as experts note, the two-wheeler industry has been on the up in recent times and competition has got tougher, with even the top two companies, Hero and Bajaj, finding it difficult to retain their market share against a formidable competitor - Honda.

"We are in the fourth position today," says Venu Srinivasan, chairman and managing director of TVS Motor, "and we aim to be among the top three in the next three years." The increase in market share has filled TVS Motor with a new enthusiasm and Srinivasan feels the Chennai company has taken an important change in direction. To keep the momentum going, he says the company will launch a new product at least once every four months over the next three years.

However, the main criticism against the company remains the inordinate time it takes to launch a vehicle. Analysts, rivals and industry experts concur on the fact that despite TVS Motor's products being good, the time they take to reach the market deflates their chances as its competitors are now more aggressive in their strategies.

"One of our weaknesses that people point out is that we do not have regular product launches," admits Srinivasan. But he says this is by design, not by accident. "We feel that unless we master the field of consumer-led engineering, gain a deep understanding of consumer psychology and aspirations and convert those to hard engineering and style, we don't want to launch a product," he says. "Just launching new models will not necessarily help us improve market share. In fact, this will have a bad impact on our bottom line." Srinivasan points out how TVS Motor launched two products last year, the Jupiter and Star City, after spending around four years to improve quality. But the time taken to ensure quality helped the company significantly in recording big sales. "The launch of the Jupiter provided a stellar growth of 23 per cent in the second half of 2013-14 compared to the previous year," says Srinivasan.

A buoyed TVS Motor has increased its R&D investment by around 4 per cent to Rs 130 crore in 2014 (1.8 per cent of revenues). Advertisement and marketing spends have also increased by around 37 per cent year on year to Rs 280 crore (3.5 per cent of revenues against 2.9 per cent in 2013-14).

Launches bring success
Last year's successes with the Jupiter and Star City delayed the planned release of Scooty Zest from June to August and of the Victor from September to December. However, the company is convinced that these new two-wheelers will propel it towards a market share of 14 per cent by the end of 2014-15.

Kaushal Maroo and Yaresh Kothari, analysts with Emkay Global Financial Services, say, "We are slightly cautious about the very high optimism surrounding the new launches as visible in the sharp rise in the stock price."

There is reason for the caution, given the energy that other two-wheeler makers are injecting into their campaigns. As analysts at JM Financial explain, "While we expect margins to improve from the current levels, we expect them to remain under pressure in the near-medium term, given the aggressive launch pipeline. Further, we are not building double digit margins in 2016-17 despite the volume growth, given the increasing competitive intensity in the domestic market. While Honda two-wheelers recently launched an aggressive media campaign and is working on its fourth plant, Yamaha is targeting 11 per cent market share by 2017, up from 3 per cent in FY14; Bajaj Auto maintains an aggressive launch pipeline in India."

TVS Motor has reported robust growth in volumes in the last few quarters, supported by successful product launches like that of the Jupiter. However, experts point out that the growth in volumes has failed to lift the EBITDA substantially, partially because of the increasing competition from players like Honda and Yamaha.

JM Financial notes that since 2004-05, TVS Motor has steadily lost market share in the motorcycle segment, going down from 12.9 that year to 5.5 per cent in 2013-14. Even in the scooter segment, where TVS historically has held a significant market share, it has lost ground in recent years. In 2005, its market share was 23.8 per cent, which has now slid down to 12.7 per cent.

Srinivasan estimates that the total two-wheeler industry in India will grow by around 11 per cent this year, compared to around 7.4 per cent last year, mainly because he expects the domestic economy to pick up and consumer confidence to grow. This should stand the company in good stead, he feels. TVS Motor will also focus on emerging markets, especially in Africa, South America and Indonesia. At present export contributes 15 per cent to the company's volumes.

While the company has lost some money in the Indonesian subsidiary, the experience it has gained from competing in Indonesia - mainly on the importance of style, finish and engineering - has helped TVS Motor in the Indian market in the last three years, says Srinivasan.

While disclosing that Indonesia is expected to break even in the next 12-18 months, he considers the "excellent results" in India as being the outcome of being in Indonesia, which is the "outpost from which we are able to gather the world trends, be it technologies, finish, aspirational styling". TVS Motor will continue to focus on emerging markets to grab a greater share of exports of two wheelers from India. The company wants to strengthen its presence in African, South American and Indonesian markets, which are likely going to be big for business in the future.\

Source:- business-standard.com