Home / Companies / News /  Future of TVS’s Indonesian unit rides on Skubeck’s success

Chennai: TVS Motor Co. Ltd may stop production at its Indonesian two-wheeler subsidiary PT TVS Motor Co. and convert it into an export hub if a new scooter it is planning to launch in that country doesn’t help it break even.

The company had in its September 2011 annual general meeting (AGM) forecast that its Indonesian arm would reduce its losses that year and break even the next year.

That didn’t happen, and TVS Motor is hoping its new scooter Skubeck will succeed despite several hurdles.

“The operation of the Indonesian arm is a major concern but with the launch of the new scooter we expect it to break even next year," Venu Srinivasan, chairman and managing director of TVS Motor, said in an address to shareholders at the company’s 21st AGM on Friday.

“We hope Skubeck will bring us fortunes; but if it does not, we may decide to stop production and convert it (Indonesian facility) into an export hub," said H. Lakshmanan, director of TVS Motor.

PT TVS Motor has a manufacturing capacity of 300,000 units a year. TVS’s exports from India rose to 16% of its revenue in 2012-13 from 6% in 2007-08.

The Chennai-based two-wheeler firm has been struggling to gain market share in the Southeast Asian island nation ever since it launched the Indonesian subsidiary in 2007.

One of the main reasons for the two-wheeler company’s struggles in Indonesia is the paucity of bank lending for buyers, said Srinivasan.

Nearly 75% of the bikes sold in Indonesia are financed, while it is just 45% in India, according to Lakshmanan.

Banks in Indonesia provide loans only for buyers of Japanese two-wheelers, making it difficult for Indian companies to gain market share, said Umesh Karne, vice-president at Bric Securities Ltd. Japanese bikes have better re-sale value than Indian models.

TVS Motor earlier this year sold surplus land of 200,000 sq. m in Indonesia, making a profit of $17 million.

India’s fourth largest two-wheeler firm has invested 124 crore in Indonesia. The overseas arm posted a loss of 100 crore in 2012-13, excluding the one time gain from the property sale, wider than its 90-crore loss in the previous year.

“Indonesia is a highly competitive market and larger firms like Honda, Yamaha and Suzuki (all Japanese companies) are well-entrenched," said Yaresh Kothari, an analyst tracking auto at Angel Broking Ltd. Close to 90% of the Indonesian two-wheeler market is dominated by Japanese companies.

TVS’s overall market share in Indonesia is insignificant, said Karne. The firm sold about 19,000 units in 2012-13, compared with the 23,000 units it sold in the previous year.

Bajaj Auto Ltd is also finding it tough to crack the Indonesian market. It reported a loss of 24 crore in 2012-13.

TVS’s recent technology tie-up with BMW Motorrad, German automaker BMW’s motorcycle division, is helping it improve its production and technological capabilities.

“We have learnt over the last one year of working with BMW significant engineering processes and knowledge. We are going towards zero-error products," said Srinivasan.

The firm’s 125cc bike Phoenix that it launched seven months ago was a zero-defect product while the Wego scooter, launched in 2009, had a defect that was rectified, he said.

In October, TVS Motor said it would launch two-wheelers at the rate of one every three months. It intended to launch two bikes and two scooters by September but has since launched only the Phoenix. TVS now expects to launch five two-wheelers and one three-wheeler by December 2014, Srinivasan said.

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