TVS Motor results hit by overseas operations

Investors did not expect any positive surprises from TVS Motor Co. Ltd in the March quarter, given that it had sold 1.4% fewer vehicles at 520,000 units from a year ago. Its story is no different from that of its peers, which in the March quarter began to feel the heat of competition and lower demand due to high interest rates and fuel prices. TVS’s March quarter revenue at Rs 1,672.2 crore was flat from a year ago and down by 7.6% from the preceding quarter.

What’s worse is the challenging outlook for TVS and the sector as a whole, particularly after Wednesday’s steep petrol price hike. Failing investor confidence is reflected in the steady slide in the company’s stock price, which has contracted 35% since January, even as benchmark indices gained during the period.

Concerns on the company have increased in the last few months, as industry data shows that it has lost its third place in the two-wheeler market to Honda Motorcycle and Scooter India Pvt. Ltd, which has garnered a higher share in just 15 months of aggressive marketing. Will TVS be able to cope with the stiff competition given the plethora of products and variants being planned by all two-wheeler makers?

Further, in spite of a media statement highlighting the management intent to venture into new export markets, TVS did not bring much comfort to investors on this count, as exports in the March quarter dropped 19% from a year ago.

A positive factor in TVS’s March quarter performance is its cost management, in spite of no major upside in operating leverage. Operating margin at 6.1% was flat compared with a year earlier and about 50 basis points, or half a percentage point, lower than the December quarter, mainly on account of slightly higher raw material expenses incurred during the quarter. That said, lower revenue led to a 1.4% drop in operating profit to Rs 989 crore.

The 32.1% year-on-year jump in reported net profit, therefore, came from the Rs 8 crore “other income” clocked during the quarter.

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Further, the performance of its investments in overseas subsidiaries, particularly Indonesia, has been far from encouraging. A quick glance at the full-year financials shows the loss incurred by subsidiaries has widened from Rs 66.7 crore a year ago to Rs 117.4 crore. Consolidated net debt-to-equity ratio rose from 0.89 to 0.95, which would only drag down the consolidated profit, when growth in revenue and operating profit is stymied.

So far, TVS’s strong comeback in domestic markets has lifted investor confidence, in spite of troubles encountered in its overseas investments. But now with its market share being trimmed on home ground, it would not be surprising if investors shy away from the stock.

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