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Business News/ Industry / Manufacturing/  TVS Motor hopes to cut costs by reducing platforms
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TVS Motor hopes to cut costs by reducing platforms

The firm plans to reduce the part count by 40% in the next three years to improve profitability

The company, which posted a 28% increase in FY12 net profit, is seeking to narrow the gap with bigger rivals. Photo: Hemant Mishra/Mint. (Hemant Mishra/Mint.)Premium
The company, which posted a 28% increase in FY12 net profit, is seeking to narrow the gap with bigger rivals. Photo: Hemant Mishra/Mint.
(Hemant Mishra/Mint.)

Chennai: TVS Motor Co. hopes to boost profitability by using fewer product platforms and cutting down on the number of components that go into its scooters and motorcycles, over the next three years, chairman and managing director Venu Srinivasan said on Wednesday at the company’s annual general meeting.

“We’ve had multiple platforms when compared to competition, so one of the key thrust areas is to decrease the number of platforms to two or three. We will also simplify the number of parts and reduce the part count by 40% in the next three years. This should help decrease costs and improve profitability."

The company, which posted a 28% increase in FY 12 net profit to Rs.249 crore, is seeking to narrow the gap with bigger rivals Hero MotoCorp Ltd, Honda Motorcycle & Scooter India (Pvt.) Ltd and Bajaj Auto.

The company has lined up product launches starting with the 125cc Phoenix, a bike in the so-called executive category, on 28 September. “We’ve been absent in the executive category and Phoenix should set that right. We hope to have new launches in every quarter, in the next 18 months," said Srinivasan.

The company hopes to reach cash break even at its Indonesian arm PT TVS Motor Co. in the current fiscal, according to Srinivasan. The chairman indicated last year that the subsidiary, which was set up in 2007, would achieve break-even in FY12. Srinivasan denied rumours that it may shut down their Indonesian operation.

“The fundamental problem is the Japanese have 99% market share in Indonesia. So TVS is trying to play with just 1% of the market," said Ajay Shetiya, an analyst at Centrum Broking.

In 2007, the company made an initial investment of Rs.200 crore in building a plant in Karawang, West Java, with initial production capacity of 120,000 units a year. The subsidiary posted a 16% operating loss to Rs. 49 crore at the Ebitda (earnings before interest, tax, depreciation and amortization) level in FY 12.

TVS Motor’s annual report said the Indonesian motorcycle industry has been growing at 15% in the last five years, but growth is expected to slow to 10-12% in the next five years.

Shetiya said Indonesia is a market that is heavily dependent on financing; 85% of the two-wheelers sold in the country are purchased with loans. “Financial companies extend funds only to bikes that have a brand presence there and sell in large number," he said.

Also, the market in Indonesia has shifted to the scooter category from the moped category, and this has hurt the company as it does not have a scooter model in Indonesia. Earlier the moped category used to account for 80% of the market in Indonesia and it has now come down to 40%.

The company hopes to catch the trend by launching a scooter designed for the Indonesian market in the second quarter of next fiscal, but analysts say it will take time for it it to gain traction.

“I don’t think they can be profitable in Indonesia for the next four years at least," said Shetiya.

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Published: 12 Sep 2012, 05:11 PM IST
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