Company Profile

TVS Motor Company (TVS-M) one of the largest two wheeler manufacturers in India,
started manufacturing in 1979. TVS-M currently manufactures a range of two wheelers
namely motorcycles, scooters, scooterettes and mopeds in its plants located at Hosur (in
Tamilnadu) and at Mysore (in Karnataka). Our subsidiary M/s Lakshmi Auto Components
Ltd (LAC), the Engine component division has been merged with TVS-M, so the annual
report of 2003-04 comprises of both. Our market share is around 22 %. TVS-M is also the
market leader in the moped segment enjoying a share of 69 %. The combined capacity as
of march 04 is more than 1.6 million vehicles TVS-M also exports its bikes as SKDs and
CKDs to African and South American countries and also to Bangladesh and Srilanka.
Historical Comparison

1. Current Ratio

2004- 2005- 2006- Average 2007-

2005 2006 2007 2008
Current Asset
Inventories 233.23 357.90 396.56 329.23 405.38
Sundry Debtors 39.56 58.90 111.40 69.95 87.86
Cash and Bank 73.87 24.35 86.56 61.59 3.73
Short Term 61.89 103.22 103.77 89.63 72.17
Investments
Other C.A. 0.29 0.30 0.30 0.30 0.30
Loans 164.70 214.88 227.58 202.39 277.52
573.54 759.55 926.17 753.09 846.96
Current Liability
Current Liab. 452.19 524.46 577.02 517.89 505.76
Provisions 55.61 62.44 49.73 55.93 60.99
507.80 586.90 626.75 573.82 566.75

Current Ratio 1.13 1.29 1.48 1.30 1.49 0.19

Notes: The Short Term part of the Investments have been taken as Current Assets

The current ratio of the company has improved by .19 over the last three years average of 1.30.
Thus we will give it a score of 2.
 2. TOL/TNW

TOL
Secured Loan 175.0 308.61 506.16 329.93 452.68
1
Unsecured Loan 11.83 76.43 127.40 71.89 312.66
Current Liability 452.1 524.46 577.02 517.89 505.76
9
Differed Tax Lib 148.5 149.01 159.01 152.18 154.90
1
Provisions 41.35 48.19 46.17 45.24 44.36
828.8 1106.7 1415.7 1117.1 1470.3
9 0 6 2 6

TNW
Share capital 23.75 23.75 23.75 23.75 23.75
Reserves and 655.0 742.37 785.52 727.66 797.83
Surplus 8
678.8 766.12 809.27 751.41 821.58
3

TOL/TNW Ratio 1.22 1.44 1.75 1.47 1.79 0.32

Total outsiders liability by Total Net worth has worsened by .32 over the last three years average.
So we have given a score of 0.
 3. PAT/Net Sales
Ratio

PAT 183.32 160.71 102.10 148.71 60.86

Net Sales 2875.9 3234.9 3854.9 3321.9 3219.5

1 6 6 4 0

PAT/Net Sales 0.06 0.05 0.03 0.05 0.02 -0.03

Ratio

PAT by net sales ration has gone down by0 .03 from the last three years average. So we score it
as 0.
 4. Inventory+Receivables/Net Sales

Inventory 233.2 357.9 396.5 329.2 405.3

3 0 6 3 8
Receivables 39.56 58.90 111.40 69.95 87.86
Daily Net Sales 7.99 8.99 10.71 9.23 8.94

Ratio 34.15 46.38 47.44 42.66 55.15 12

The turnover ratio of Inventory + Receivables by Net sales has worsened by 12 days. So we
score it as 0.

Financial Parameter Score

Current ratio 1 2
TOL/TNW 0 2
PAT/Net Sales 0 2
(Inv. + Rec.)/Daily 0 2
sales
Score 1 8

Out of 8 TVS has managed to score only 1, which clearly states that it is in a financially bad
position compared to its historical performance.

Industrial Comparison
TVS Motors Bajaj Auto Hero Industry
Ltd Honda Average
Current Ratio 1.49 0.88 0.96 1.05
 Total liabilities / Total Net 1.79 2.09 1.72 2.19
worth
PAT/Net Sales 1.89 0.13 0.09 0.08
Inventory + Receivables/ 55.15 145.21 18.09 77.15
Net Sales
PBDIT/Interest (times) 60.34 360.23 61.28 142.69
ROCE 0.04 0.03 0.97 0.35

Current Ratio 2.00

Total liabilities / Total Net 2.00
worth
PAT/Net Sales 2.00
Inventory + Receivables/ Net 2.00
Sales
Total Score 8.00

The score clearly shows that although TVS Motors is doing badly compared to its historical
performance, its far better than the two other major players in the Two wheeler industry.

Financial Risk Rating (Working

Capital)
PBDIT/Interest
2007-2008
PBT 35.37
Interest 2.19
Depreciation 94.59
PBDIT 132.15
PBDIT/Interest Ratio 60.34246575
ROCE
PBIT 37.56
Total Asset 1,382.01
Current Lib & Prov. 566.75
Capital employed 815.26
ROCE Ratio 4.61%
Financial Risk
Rating
2007-2008 Score Score
Current ratio 1.49 4 5 20
TOL/TNW 1.79 5 5 25
PBDIT/Interest 60.34 5 2 10
PAT/Net Sales 1.89% 0 2 0
ROCE 4.61% 0 2 0
(Inv.+Rec.)/Daily 55.15 5 4 20
Sales
Total Score 20 75 37.5
R&J Model

Financial Parameter
Score 1 0 -1
Current ratio Greater than Equal to average plus or Less than
average plus minus a variation of average minus
0.03 0.03 0.03
TOL/TNW Less than Equal to average plus or Greater than
average minus minus a variation of the average
0.20 0.20 plus 0.20
PAT/Net Sales Greater than Equal to average plus or less than
average plus minus a variation of average minus
0.50 0.50 0.50
(Inv. + Rec.)/Daily sales Less than Equal to average plus or Greater than
average minus minus a variation of 20 the average
20 days Days plus 20 days

We are suggesting a more stringent rating system in which if the company go below the average
of last three years performance it’s given a negative score which will negate a positive score in
some other criterion.
 Current ratio 1
TOL/TNW -1
PAT/Net Sales 0
(Inv. + Rec.)/Daily sales 0
Total Score 0

As per our new rating system the score of TVS Motors in Historical comparison is Zero.
Book Value/ Market value

Share Capital 23,75,00,000

Reserves and Surplus 7,97,83,00,000
Book Value 8,21,58,00,000
No. Of Equity shares 23,75,43,557
Book Value 34.59
Share price as on 5/12/08 24.15
Book Value/Market Value 1.43

The market value of TVS Motors as per December 5, 2008 price (Rs.24.15) is below its book
value. Thus it is underpriced. The book value is 1.43 times of the market value.
Contingent liability

Contingent Liabilities not 167.53

provided for
Liabilities contested but not 74.19
provided for
Total CL 241.72
CL/TNW 0.29

Since its above 10% of the Total Net Worth we give a score of -10
INDUSTRY RISK
The industry risk for TVS Motors, is measured by analysing where the company stands on the
following parameters. These parameters are Competition & Market Risk, Industry Cyclicity,
Regulatory Risk, Technology and quality control, User Profile, and Inputs Profile.
Based on the companies standing on the above mentioned parameters, corresponding scores have
been assigned to the company.
Sl. Measure of Reasons for score
Score
No. Score
TVS Motors operates in a highly competitive market, driven
largely by aggressive Japanese motorcycle makers, along with a
large Indian Player, Hero Honda. The overall demand of
motorcycles will be dampened by the current financial crisis. With
demand slowing down all over the globe, and most of the first
world facing recession, Indian Financial institutions are also going
slow on the origination of new loans. Having said that the
company has seen a dip in its sales in the economy segment and
therefore is under pressure.

C
Typically the two wheeler segment is a high risk loan segment and
ompe hence most banks have either gone slow on two wheeler loans on
stopped them altogether. Hence growth in the rural and semi urban
tition
markets has come to a standstill.
1 & 3
The industry has unique barriers to entry, in that beyond the
Mark
building of the plant the company will have to set up facilities to
et constantly maintain contact with the customer. These will include
sales and marketing outlets, service centres and the like.
Risk
The company is among the top 3 players in the market.

The company also has a steady brand that has been around in the
country for a long time. It has facilities abroad that are coming on
stream, which will make it less susceptible to Indian demand. The
company has also received multiple awards for its new product
launches – TVS Flame & TVS Apache.
 The slowdown in the 1st world is having an impact on the
consumption patterns in India. With credit drying up, the
aspirational buyer’s appetite to take on debt and consume is being
curtailed.

The boom period preceding the current slowdown in demand has

led to a situation of overcapacity among most producers. This is
having an impact on costs while operating in this phase.

Over the long term, the industry is poised for a recovery. As the
Indus disposable income of Indians increase the appetite to consume will
also rise, leading to higher demand for two wheelers in the long
try term. The current slowdown is expected to last for another 18-22
2 3 months and auto industry will be affected severely during this
Cycli
time. The severity of the situation may be seen by the fact that GM
cality and Ford are now asking for a government bailout to remain
functional. In India also, Sundaram Fasteners competitors have
had to shut shop, while Ashok Leyland is operating its factories for
only 2 days a week.

Typically the segment has grown by around 15% YOY, but this
year that will not be the case and slow growth will continue to
plague the industry.
The size of the large players ensures that they are capable of
weathering industry cycles and hence are not expected to go
bankrupt in the current scenario.
 Motorcycle industry in India is seen as the common mans
consumption space and hence is not susceptible to negative
government cues. On the whole the motorcycle space is not very
susceptible to government policy changes directly, but they are
depending on fuel price decisions. In a rising oil price scenario,
the demand may dampen. To combat this, the company has entered
the electric two wheeler space.

The space is also dependent on RBI outlook on liquidity situation

in the country. If the liquidity in the market dries up, the demand
Regu will also fall.

lator
3 4 Although the company, spends roughly 2.6% of revenue on R&D,
y and depends on 400 engineers working in this space, it has not
experienced a skilled labour crunch. The company operates in a
Risk highly industrialized state and given that there are an abundance of
training institutes and engineering colleges around, the company
does not experience difficult in finding skilled labour.

The company’s relations with labour unions are good and it has
not experience any production stoppages.

Environment and Pollution clearances are also in order. There also

a huge R&D spends on more efficient engines.
 The company aggressively pursues innovation and quality
enhancements. It has always enjoyed 100 % of
employees in Total Quality Management and cost savings
by improved processes have averaged 3 crores every
year.

The expenditure on Research and Development amounts

to 2.6% of revenue on average, which ensures that the
company always has the capability to roll out new
products in order to keep the demand stimulated. An
Tech example of this would the launch of TVS StaR (sport &
auto start variants) at a time when the industry was
nolo experiencing a slowdown. This helped TVS gain a larger
market share in the economy segment.
gy
and The company has also pursued quality enhancements
4 4 and accessory development for its premium and sports
Quali line of motorcycles. TVS Flame and TVS Apache have won

ty awards for design and other functional breakthroughs.

Cont The company recognises that it will constantly have to

work on the design of its motorcycles so that they are
rol
always on the cutting edge, thereby winning the favour of
the discerning customer.

There are technology R&D tie-ups with global agencies.

This ensures that the company’s engineers are always
performing. There is also a culture within the company to
publish research articles in global periodicals. The
company has constantly applied for patents over the
years.
 The users of the company have a wide array of choice ahead of
them. And also they are broadly classified into the following
categories, economy, premium and luxury. For each of these
segments there needs to be a different value proposition. The
company by and large has maintained this parity and continues to
be competitive across all segments.

The innovations that the company has driven into its product

User portfolio are driven by patents and the company’s R&D effort
ensures that there is a flow of innovation.
5 Profi 3.5
le The company has a wide area of operation, and global presence
also.

The company’s investment in TQM and QC’s has ensured that

there is a history of good product quality.

The growth of middle class in the country has resulted in fast

changing lifestyles in urban and to some extent rural centres. This
opens a huge market for lifestyle vehicles.
 The company is dependent on fuel price and steel price
movements when it comes to its raw material acquisition costs.

The cost of raw materials depends on huge demand for

consumption by other global economies. However given the
Input
dampening global scenario, commodity prices globally have also
s dampened.
6 2.5
Profi
Fuel prices have also fallen from their highs hence reducing the
le cost of moving raw material.

The company has been pursuing the use of new components in

order to reduce its dependence on steel.

TOTAL
20
SCORE
MANAGEMENT RISK

Parameters such as Integrity, Expertise competence/commitment, Track Record, Structure &

Systems & Capital Market Perceptions are taken into account when looking to ascertain
management risk.
Sl. Measure Score Reasons for score
No of Score
.
1 The company and the group in general, are perceived with the virtues
Inte 4
of professionalism, high quality processes and integrity.
grit
y The company has shown good corporate governance disclosures, and
is extremely transparent about its disclosures when it comes to the
board of directors as well as the functioning of the company.

2
E 4 The company has a very competent management, and is also backed
by the management expertise of the TVS Group. This ensures that the
xper company always has the best management talent on hand.

tise,
The company is committed to quality and continuous process
Co innovation. This is seen by the company’s commitment to TQM
implementation at its assembly lines.
mpe
tenc The R&D is focussed on delivering the most cutting edge of products
be that in terms of quality or in terms of design innovation.
e or
com The company has successfully competed with Japanese rivals, still
keeping itself at the top 3 position in India.
mit
men The company is looking at future products in line with changing
socio economic scenario’s by looking at more fuel efficient engines,
t and electric vehicles. Although these products may represent a huge
R&D cost at present, the payoff in the long term is expected to be
huge.
3 Number 3 player in the Indian motorcycle space.
Trac 3.5
k
Rec
ord
4 Statutory requirements are met.
Stru 3
ctur World class management and governance processes to be instituted

e through the new structure

and Management is professional and distinct lines of command exist.

Syst
Company has ensured that its processes are along the line of the best
ems in industry, ensuring that information is always readily available
enhancing decision making.

Constant supply chain process enhancement takes is encouraged in

the company.
5 The company share capital consists of 250000000 shares of Re. 1 /-
C 2
each.
apit
al Out of the above 23,10,00,000 equity shares of Re. 1/- each were
allotted for consideration other than cash to the shareholders of
Mar erstwhile transferor company viz. Sundaram Auto Engineers (India)

ket Limited, Chennai

Perc 65,42,857 Equity shares of Re. 1/- each allotted to the shareholders of
epti amalgamated company viz. Lakshmi Auto Components Limited,
Chennai
ons
The company is perceived as one with high integrity and good values
in the capital market space. Having existed for a long time in India is
enjoys a good recall among investors as well.

EPS has declined due to adverse market conditions. But future

outlook remains positive.
TOTAL 16.5
SCORE
Compiled Score card for TVS Motors
Historical Comparison 1
Industrial Comparison 8
Financial Risk Rating 37.5
Contingent Liability -10
Industry Risk 20
Management Risk 8.25
Grant Total Score 64.75