TVS looks beyond comfort zone to derisk biz from domestic market pressures

The share of exports in TVS’s overall sales more than doubled to nearly 30 per cent by end 2019 against 14 per cent in 2014-15
The $8.5-billion TVS Group’s fla­gship company TVS Motor an­nounced two new partnerships in recent months — both aimed to consolidate its presence in central America. The latest push into the region is part of its strategy to step into at least two new export markets every year to derisk its business from domestic market pressures. K N Radhakrishnan, president and chief executive officer of TVS Motor Company, says, “Almost 30 per cent of the company’s business now comes from the international market and it is growing much faster than the domestic business.”

This strategy has started paying off already. The share of exports in its overall sales pie more than doubled to nearly 30 per cent by end 2019 against 14 per cent in 2014-15. That’s good news for the company because the two-wheeler market has been shrinking domestically like the rest of the automobile market. Between April 2019 and January 2020, the sales of two-wheelers in the domestic market dropped sharply by 15.83 per cent to stand at 15.2 million units, down from 18.12 million units. However, during the same period the country's two-wheeler exports grew by 8.35 per cent to 2.99 million units from 2.76 million units. TVS Motor's total domestic sales dropped by 19.16 per cent during April 2019 to January 2020 to 2.15 million units, while its exports grew by 13.46 per cent to 572,749 units in the same period.

Even while volumes are under pressure in the domestic market, TVS is looking to increase its Ebitda margin to double-digit levels from the 8.8 per cent it reported in the third quarter of financial year 2019-20. Export not only drive the volumes for the company, but is also one of the key drivers for its margins. After pushing exports and reducing the import content relentlessly, the company’s gross margins hit a 13-quarter high of 27.8 per cent in Q3FY20.

 

TVS’s global push is based on three pillars, besides riding on its 100-year legacy. TVS is betting big on technology and product quality, besides its wide range of offerings to take on competition in those markets — which largely comprise Ja­pa­nese, Chinese and a handful of Indian brands. “TVS’s export strategy is working out well because it has focused on India-like markets (Asia, Africa, Latin America) for both two-wheelers and three-whee­lers,” says Jinesh Gandhi, deputy head of research, Motilal Oswal Financial Services.

Coming to the two recent partnerships, TVS first joined hands with Motomundo SA, one of the leading business groups in Honduras. As a part of this association, Motomundo SA will facilitate the sales and service of TVS products across all Motomundo stores in the country in a phased manner. The company also announced a partnership with CADISA, a leading business group across Guatemala and El Salvador and inaugurated its flagship showroom in El Salvador. The two are expected to put their resources together to sell TVS’s four modern products — the Apache RR 310, the Apache RTR 200 4V, Apache RTR 160 4V and the Ntorq 125 scooter. Other than showcasing the bikes and the company’s technology, the dealership will also offer service, spare and other support in the region. TVS will also be present in 17 multi-brand showrooms and 150 retail stores in Guatemala.

Motomundo stores will start with one exclusive outlet for TVS and will, within a year, expand it to three stores in the country. TVS Motor Company will be present in 40 Motomundo outlets and over 25 dealers across Honduras over the next three years. The company will also operate 25 service outlets to ensure complete service and spare support. The company aims to be present in 100 plus multi-brand outlets and over 150 retail stores across Central America in thrtee years. The range of two-wheeler offerings will be supplemented with attractive retail finance schemes. R Dilip, executive vice-president, international business, TVS Motor Company, says, “The unique network of distribution that Motomundo SA has developed makes them the best strategic ally for TVS Motor Company. With this partnership, we will be able to offer customised products with complete service and spare parts to our customers and consolidate our presence in the region.”

Radhakrishnan expects the first half of FY21 to remain weak because of the current slowdown and the transition to Bharat Stage VI emission norms, with recovery in the domestic market  from the second half of the year. TVS expects exports to continue to outperform the domestic market. That said, the path ahead won't be easy, the company knows. The outbreak of coronavirus impacted the supply of certain components for the production of BS-VI vehicles, but the company has told the media it was taking all necessary steps to normalise the situation at the earliest.

TVS Motor has been a late entrant in some of these markets compared to, say, Bajaj Auto, but it has been aggressive in expanding — both in terms of distribution network and the portfolio of offerings. “It has not only targeted new markets, it has also tried to offer as many of its products in these markets as possible (from mopeds to premium motorcycles). Also, it's association with BMW has had a rub-off on its brands in the export market. This has helped it to grow its exports — at 15 per cent in FY20 YTD and now contributes ~25 per cent of the total volumes,” says Gandhi of Motilal Oswal.

Gandhi explains the dilemma in the export market in these simple terms: “While the Japanese products are superior in quality, they are priced at the premium end. On their part, Chinese brands are cheaper but are deemed lower in terms of their quality standards. Indian brands like Bajaj and TVS have struck a balance between pricing and quality, which has helped them expand fast in these markets.”


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