The unexpected announcement of a 1:1 bonus issue coupled with robust revenue growth for the June quarter boosted the shares of TVS Motor Co. Ltd. The scrip rose 6% on Wednesday to Rs128.50.
Revenue rose by 41% over the year-ago period to Rs1,329 crore. Around 33% of this accrued from an increase in number of vehicles sold and the rest from an increase in product prices towards the end of the quarter. Realization per vehicle improved by 6% from a year ago and by 3.6% over the previous quarter.
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Sales volumes grew across product categories. The motorcycles segment, driven by the success of its newly launched Jive, registered a 32% rise. The scooters segment, where it launched the Wego model a few months ago, also grew sharply by 42%. And the relatively new three-wheeler segment grew 2.5 times, albeit on a low base of 2,223 vehicles.
Given the improving economies of scale and product mix, one would have expected TVS’ operating profit margin (OPM) to expand. But it was flat at around 6.5%, around the same as the previous quarter. Higher raw material cost, which rose by nearly 4 percentage points to 73% of sales, was the dampener.
This was, however, offset partly by a hike in product price as well as a significant reduction in other expenditure and staff expenses. The net result was a 123% growth in profit after tax at Rs 40.4 crore, in line with analyst estimates.
With its new products finding acceptance in the marketplace, analysts expect the company to sell around 1.8 million vehicles in fiscal 2011, 20% higher than the previous year. More importantly, the three-wheeler segment, with an established monthly run rate of 3,000 vehicles, could touch 33,000 units by the end of the fiscal.
As this segment enjoys higher margins of 15-20% compared with two-wheelers, the firm’s overall profitability is expected to improve during fiscal 2011.
“Improving product mix and an expected dip in raw material costs in the ensuing quarters augur well for TVS Motor’s future profitability,”said Umesh Karne, an analyst at Brics Securities Ltd.
Graphic by Ahmed Raza Khan/Mint
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