Will TVS be able to hold on to Bajaj lead?

Moneycontrol Bureau

As June sales numbers trudged out, it emerged that TVS Motor had overtaken Bajaj Auto as India's third-largest domestic two-wheeler maker.

Between April and June, TVS sold 5.1 lakh units domestic sales while Bajaj's local sales stood at 4.8 lakh. TVS' sales growth was driven by the success of its Jupiter scooter and Star City + motorcycle.

That TVS dislodged Bajaj from the third spot came as a bit of a surprise to some analysts while others attributed the development to TVS' diverse product portfolio as well as Bajaj's decision to not re-enter the fast-selling scooter segment.

TVS' presence in the motorcycle, scooters, mopeds and three-wheelers has worked well for it while Bajaj has focused on its Discover commuter and the aging Pulsar premium motorcycle.

But first-quarter results were a disappointment for TVS, with profitability taking a hit due to high raw-material costs, leading some analysts to wonder if the company will ever break out of its traditional mid-single digit operating margins. Bajaj, on the other hand, enjoys operating profits of around 20 percent helped by its lucrative exports business, which contributes 40 percent of the company's sales.

Bajaj is not taking things lying down: the company attributes the failure of the Discover model and is readying to give a focused push to the brand.

It is now launching a 150cc version of the Discover, which currently comes in a 125cc and 100cc version.

In an interview with DNA , S Ravikumar, a president with Bajaj, said he hopes the Discover 150 would bring Bajaj's market share back to traditional 24 percent mark (from 20 percent currently) by the January-March 2015 quarter.

But some analysts have wondered if the Discover 150 would eat into the Pulsar's sales.

TVS, too, is geared up for battle. "The company plans to launch a new product in the fastest-growing scooter segment in the first half of FY15 along with a motorcycle, followed by two more products in the second half," Anand Rathi said in a report .

"TVS targets to stick to its aggressive launch program, which should aid volume growth going forward."

The brokerage forecasts sales for TVS to grow from Rs 7,972 crore in FY14 to Rs 9,484 crore in FY15 and Rs 10,753 crore in FY16, a compounded growth of over 16 percent.

However, another subtext within the battle for the third spot could also be that Bajaj is in the market share game and is more focused on maintaining its industry-leading profit margins.

"Bajaj's strategy is to dominate multiple markets in one category, whereas that of our domestic rivals appears to be to dominate one country - India - in multiple categories," Rajiv Bajaj told the Economic Times recently. "As a global company with a huge exports base, we are primarily the No. 1 by far in terms of profitability."

TVS Motor stock price

On July 23, 2014, TVS Motor Company closed at Rs 169.45, up Rs 1.40, or 0.83 percent. The 52-week high of the share was Rs 176.50 and the 52-week low was Rs 28.10.

The company's trailing 12-month (TTM) EPS was at Rs 5.51 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 30.75. The latest book value of the company is Rs 29.79 per share. At current value, the price-to-book value of the company is 5.69.