Two-wheelers, automotive components, spares, computer peripherals and financial services
25 companies – 2001
BACKGROUND – TVS GROUP
1903 – Michio Suzuki founded Suzuki Loom Works
1937 – Manufacturing cars
1952 – First motorised bicycle “Power Free”
1954 – Suzuki Motor Company Ltd
March 2001 - ¥1600 trillion – net sales
BACKGROUND – SUZUKI
Suzuki entered India through the TVS-SUZUKI joint venture
1982 – incorporated as Indian motorcycles Pvt Ltd
1984 – came out with public issue and named TVS Suzuki
Ind Suzuki – 1 st 100cc motor cycle –received well by the market but resulted in loss due to high import content of the vehicle
1986 – merger with Sundaram claytons moped division provided temporary solution to the company
1987 – launched TVS Champ, the moped for Urban segment
TVS Suzuki – good in moped segment but the motor cycle business was not picking up
Automobile analysts – TVS Suzuki’s products lagged behind in performance and fuel efficiency when compared to the other companies
1989 to 1991 – company posted losses
1990-91 – company declared lockout due to labor problems
Impression on the company – “practically a sick company”
Turnaround strategy was formulated
Decided to become product focused company with a strong focus on R&D and Production engineering
There are three stages of a turnaround strategy:
I – Pre-turnaround
II – Period of Crisis
III – Period of Recovery
The first stage is the period just before the profitability begins to decline. The company is still considered profitable at this point, but losing ground.
The second period is known as the period of crisis. At this point the company needs to turnaround. This stage is marked by a decline in profits (even negatives), a fall in market share and the company's poor cash situation.
The third stage is the period of recovery or the turning point.
This is the stage where serious action is taken to turnaround the company.
Important decisions like scaling back production or returning to an aggressive growth stage are taken.
At this point, the company's strategy is clear. The company can choose to rely on a centralized and low cost system and continue profitably.
Alternatively, it might decide to combine these benefits with a growth strategy. This is the longest period and may last for years.
Changing the leadership
Redefining strategic focus
Selling or divesting unnecessary assets
Making careful acquisitions
Improving Profitability: To do this the company has to take drastic steps like:- 1. Assigning profit responsibility to individual divisions
2. Tightening finance controls and reducing unnecessary overheads.
3. Laying off workers wherever necessary
4. Investing in labour saving equipment
5. Building a new inventory management system and manage debt efficiently through negotiating long-term loans.
Turnaround strategy – cost cutting, slashed manpower and controlled inventory
1992 – 93 – five new products which include Suzuki Samurai and Shogun were launched
Aggressive marketing strategies were used
Special attention to skill development of managers, sales officers and service engineers were given
Dealerships were transferred and the number was reduced to 250 from 400
The company sold 0.27 million two wheelers
Turnover – Rs 4.1 billion
Net profit – Rs 330 million
1995 – India’s 2 nd largest two wheeler company
Four stroke scooter, Spectra
Completed in 32 months and launched in 1998
Price – Rs 38000
Bajaj introduced four stroke scooter legend and lead to the project’s failure
April 2000 – 1 st Indian company to launch 150cc four stroke motor cycle ( Suzuki Fiero) successfully
August 2001 – launched TVS Victor
Analysts – although 6000 Victors were sold in november and december 2001, the bike’s performance is doubtful due to the breakup
SUZUKI CREATED ROAD BLOCKS TO TVS
LAUNCH OF SAMURAI & SHOGUN
EXPRESSED DESIRE TO INCREASE THE EQUITY HOLDING
VETO RIGHTS OVER ALL ASPECTS OF MGMT & IN DECISION MAKING PROCESS.
RESTRICTIONS ON EXPORTS.
CONDITIONS TO RESTRICT USE LOCAL COMPONENTS.
COMPULSORY IMPORT OF ALL DYES & CAPITAL EQPT.FROM SUZUKI.
PAYMENT OF ROYALTY FOR AN INDEFINITE PERIOD.
“ It will not only cause huge loss of Foreign exchange to the country but also jeopardize the ability of TVS to develop an Indian Brand nationally-a skill assiduously developed by the Indian Management.” -Venu Srinivasan Managing Director,TVS
GOVT DECIDED NOT TO INTERFERE IN THE ISSUE.
SUZUKI WITNESSED HIGH DECLINE IN SALES.
INDIAN MC SEGMENT SHIFTED TOWARDS FOUR STROKE MODEL.
TVS SUZUKI LOST OUT ON THE HUGE DEMAND.
IN 2001, TVS & SUZUKI MOVED SEPARATELY TO ACQUIRE SCOOTER INDIA LTD.
IN AUG 2001, SUZUKI ENTERED AN AGREEMENT WITH KAWASAKI FOR PRODUCT DEVELOPMENT ,DESIGN ENG.& MANUFACTURING.
TVS WITNESSED IT AS DIRECT CONFLICT OF INTEREST.
“ ALL WAS NOT WELL”-ABSENCE OF SUZUKI’S OFFICIALS IN AGM.
SUZUKI SOLD ITS STAKE FOR Rs 15 PER SHARE .
* Either to remain in Jv as a passive partner.
* Move out to explore new options.
DURING JV, INVESTED ONLY 60 Mn, WHEREAS RECD.900 MILLION – a whooping 93% return.
SELL-OFF NOT CONSIDERED AS BAD MOVE.
TVS MAINTAINED PROFITABILITY WITH MOPED BUSINESS.
TVS OVER DEPENDENCE ON TWO-STROKE ENGINE.
TVS SHOULD SPEND 2 BILLION TO IMPROVISE FOUR STROKE TECH.
TVS WITNESSED AS A CO. “ALL SET TO FIGHT A LOSING BATTLE.”
Analyst s Opinions
TVS can still think of outsourcing its design from abroad.
Other than Fiero, Max 100 and the Samurai, there was no technological collaboration from Suzuki.
Transition Period of 30 months was long enough for TVS to become technologically self-reliant.
THE ROAD AHEAD
TVS Suzuki to TVS Motor Company Limited in November 2001.
In December 2001, TVS Motor Company opted for an early end to the licensing agreement with Suzuki (i.e) by April 2002.
TVS Motor Company started banking on its R&D to help it sustain in the two-wheeler market.
To improve sales and service program at dealer’s end.
THE ROAD AHEAD
Secured 30,000 bookings for the Victor.
TVS started mastering four-stroke technology.
Plans to launch two new motorcycle ranges, two scooters and mopeds by 2005.
Product development time from 24 months to 12 months.
Expand to Malaysia, Vietnam, Thailand, Indonesia and Philippines by 2005.
Market capitalization trebled to RS.57.52billion in Jan 2002 from Rs.18.44bn
THE ROAD AHEAD
Performance and competitors:
Rise in per capita income
Lowering of interest rates
Changes in consumer preference towards trendier two-wheelers
Led to increase in the demand of motorcycle as against scooters and moped
FY00 FY01 FY02 FY03 FY04 Units sold Motor cycle 313,446 354,517 450,497 718,447 706,558 Scooterrette 122,947 142,458 144,135 152,472 189,238 Moped 364,598 366,471 271,683 248,190 251,065 Total 800,991 863,446 866,315 1,119,109 1,146,861 (Rs m) Net sales 15,418 18,210 19,305 27,045 28,202 Operating profit 1,686 1,286 1,297 2,624 2,594 PAT 862 626 539 1,280 1,385 Operating profit margin 10.9% 7.1% 6.7% 9.7% 9.2% Net profit margin 5.6% 3.4% 2.8% 4.7% 4.9% Number of shares (m) 23.1 23.1 23.1 23.1 237.5 Face Value per share 10 10 10 10 1 EPS 37.3 27.1 23.3 55.4 5.8 Fully Diluted EPS 3.6 2.6 2.3 5.4 5.8
The company has comparatively a weaker financial position. Not only returns are low, but also the assets are not optimally utilized.
One of the reason for the same can be continuous thrust on R&D (post the severance of ties with Suzuki Motors),
The fruits of which yet to be reaped, which is clearly evident from the fact that capex as a percentage of sales is rising.
TVS Hero Honda FY04** FY04* RONW 24.7% 64.0% ROCE 17.3% 55.5% D/E (x) 0.2 0.2 Interest coverage ratio (x) 179.9 527.2 Payout 22.6% 54.8% BVPS 24 57 Sales per employee 6.4 14.2 Sales to NFA (x) 4.0 9.9 Capex to sales 11.6% 2.5%
The performance of the company will be largely volume based, dependent on its ability to garner increasing share in motorcycle market and exports to South East Asian countries.
At Rs 69, it is trading at price to earnings ratio of 11.3 times and price to cash flow of 10x our FY07 estimates, which appears to be expensive in comparison to its peers in light of its erratic past performance, especially in motorcycle segment.
TVS Motor may be a relatively smaller player in the 7.5 million units two-wheeler market in India, but it is the first two-wheeler company from India to set up a Greenfield project abroad with the commissioning of a plant recently in Indonesia.
TVS Motors' recent foray into the three-wheeler (passenger) market completes its product portfolio to take on Bajaj Auto, an undisputed leader in the three-wheeler mart
However, if the company continues to bring out new models continuously and is able to expand its non-south horizons, things could look different