As expected the border tensions between India and Pakistan and the intense diplomatic efforts aimed at de-escalation of tensions occupied the minds of the investors for the most part of the week. In the shadow of these tensions the Sensex showed an inclination to move up as it crossed 3400. Perhaps the Infosys Chairman’s meeting with the Chinese premier could have spurred the market except that the Wipro results for the quarter became a dampener and the Sensex settled at a modest 3377 at the end of the week...

 

With the best of the IT companies having already announced the quarterly results, their impact on the market have been exhausted for the time being. The market health for the coming week would therefore be determined by non tech stocks. One industry which promised to take the market forward was the two wheeler industry which came up with encouraging results from the major players. The star performers in the industry have been Hero Honda, Bajaj Auto and TVS Motor.

 

It is interesting to observe that share prices of  Hero Honda have doubled in the last six months from around 150 to 310 now, while Bajaj Auto has moved up from Rs 260 to Rs 440 in the same period. One of the star performers in the industry has been TVS Motor company which has pulled itself up from around RS 70 in September 2001 to around Rs 250 now. This 300 % raise should be considered as a dream movement in the current market conditions. Let’s see if  the shares have further potential for growth from the current levels.

 

The first half of the current financial year ending September 2001 saw that the Company’s sales dip by  8.3% in overall volumes.  Cumulative volumes comprising moped, scooter and motorcycles fell from 421,349 units in 1HFY01 to 386,285 in 1HFY02. The quarterly sales and profits also had declined in comparison to the last year. The profit after tax for Q2 of the current year was RS 10.3 crores compared to Rs 20 crores for the corresponding previous year. The EPS had therefore dropped from Rs 35 to around Rs 17. The shares had therefore declined to  low of Rs 70.

 

Since September 2001 the share price performance  has however been having a dream run. One of the reasons for the change in the fortunes of TVS Motors in the stock markets is that the company will no longer be required to pay the royalty of RS 17 crores to Suzuki  Motors. The Company has  also decided to make some changes in the product mix by dropping two of the bikes Shogun and Sholin. Currently the product mix consists of 43 % by way of mopeds, followed by motorcycles at 37 % and Scootys at 18 %.

 

One of the features of the Company has always been its concentration in South which has been both a sense of strength as well as a source of worry. However, it appears that the Company  has so far benefited  from this regional specialization and would continue to have a dominant share of the market at a relatively low marketing cost.

 

The Company has already introduced the new motorbike, Victor without Suzuki technology and has developed scooters in-house without Suzuki's help. The recently launched four-stroke motorcycle Suzuki Fiero has been showing a good growth in the seven states where it had been launched. These might be behind the improvement in the sales observed  in November 2001 when the Motor Cycle sales went up by 27 %.

Despite the difficult past, the launch of the new Victor is expected to change the fortunes of the Company and is the reason for its good show in the market place. There is an element of speculation here but the current trend indicates that shares may further move up from the current levels since the institutional interest on the scrip has just started. The scrip is presently not a major holding in the Mutual funds. The performance of the two wheeler industry has attracted the markets so much that most of the funds will now be trying to increase their holdings in this sector. The three scrips TVS Motor, Hero Honda and Bajaj will be the preferred possession of many Mutual funds in the next quarter to replace Satyam, Wipro and Infosys shares.

It is recommended that investors who can take that little bit extra risk and long term exposure if need be, may  add TVS Motors to their portfolio even at the current price levels.

 

Na. Vijayashanakr

January 19, 2002