TVS Motor piggybacking on scooters’ success

TVS Motor Co. Ltd is in a sweet spot. Increasing demand for scooters and the timely success of its new scooter model Jupiter are helping it avoid the general sluggishness in the domestic two-wheeler industry. Since the launch of Jupiter in September, monthly scooter sales have increased by more than one-fourth. According to TVS Motor’s latest annual report, scooters as a category is gaining share from motorcycles. “Category shift from motorcycles to scooters continued in 2013-14 also, bringing more male buyers into the category,” TVS said.

As gearless scooters gained acceptance, companies started introducing more powerful scooters at higher prices. While the strategy is helping them improve scooter realizations, a presence in different segments (the company sells four different scooters) is helping TVS benefit from what Motilal Oswal Securities Ltd calls a “scooterization wave” in India. “TVS Motor is well-positioned to benefit from the scooterization wave with its complete scooter portfolio,” Motilal Oswal said in a note.

Strong scooter sales are having a positive rub-off effect on the company. Footfalls are increasing and the company is getting an opportunity to pitch its higher value motorcycles to consumers. To help sustain consumer interest, the company is planning to launch several new products. It introduced three new products (two in India and one abroad) in the last quarter alone, helping strengthen TVS Motor’s presence in two-wheeler industry. “The TVS management is looking to leverage on a complete scooter portfolio in FY2015. It also expects motorcycle volumes, which were lacklustre in FY2014, to pick up in FY2015 aided especially by the launch of the TVS StaR City+ (launched in May),” said Sharekhan Ltd brokerage.

The improving dynamics have begun to show in TVS Motor’s financial performance. Revenue has picked up. As the company reduced debt, return ratios have improved considerably in the last fiscal. With the company planning to become debt-free in another year, analysts expect the return ratios to improve further. “Further, with an improvement in the margins going forward, we expect the company to post both RoCE (return on capital employed) and RoE (return on equity) in excess of 20% in the next couple of years,” Sharekhan said in a note. To put things in context, the company’s RoCE and RoE stood in the range of 18-19% in the last fiscal year.

The optimism is seen in the stock. The company’s shares multiplied almost five times in the last year (from Rs.33 to Rs.163). Even though the gains are making some analysts wary about the stock, continued momentum in sales and earnings can help maintain investor interest in the company.