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B. Krishnakumar

TVS Srichakra is a beneficiary of the sustained increase in two-wheeler production witnessed in the last few quarters.

However, taking into account the slowdown in demand for two-wheelers in the last couple of months and the recovery in share price in the past six months, shareholders could use price upmoves to reduce exposure in the company. Considering the underlying fundamentals and a healthy dividend yield, price declines towards Rs 30-35 range could be used to take fresh equity exposures.

TVS Srichakra is a major producer of two-wheeler tyres. It derives bulk of the revenues from the original equipment market. The company caters to the requirements of almost all the two-wheeler majors, including TVS Motor, Hero Honda and Bajaj Auto. Within the two-wheeler industry, the company enjoys a strong earnings exposure to the group company — TVS Motor.

Owing to the lean patch that TVS Motor Company went through during 2001-02, the company's net profit remained almost unchanged at Rs 6.2 crore (Rs 6.5 crore) even as the turnover rose 13 per cent during this period.

However, the sharp pick-up in TVS Motor's sales volume since the launch of four-stroke motorcycle, Victor (in the third quarter of 2001-02), has had a positive impact on TVS Srichakra's performance.

The turnover for the first half of this fiscal jumped 38.9 per cent to Rs 103.8 crores while post-tax earnings increased 38 per cent to Rs 3.3 crore.

For the quarter-ended December 2002, both the turnover and post-tax earnings rose 30 per cent to Rs 56.3 crore and Rs 2.2 crore respectively.

Going forward, the company may find it difficult to sustain the growth rate of the last one year owing to growing competitive pressure and the slowdown in demand for motorcycles.

For the month of March, Hero Honda has logged a net decline in motorcycle sales while Bajaj and TVS Motor have seen a near stagnation in motorcycles offtake. Bresides, the competitive pressure in the industry is also factor that may affect TVS Srichakra's performance. The impact of the same is reflected by the fact that the company's sales volume increased by only 14 per cent to 50.32 lakh units during 2001-02, despite a much healthy 37 per cent rise in motorcycle sales during the period.

Going forward, the company's performance would continue to be influenced by the growth prospects for its key customer — TVS Motor. Besides, the competition in the industry is also getting stiffer, especially from MRF.

If the latest trend of slowdown in motorcycle sales were to persist, it could have major negative implications for TVS Srichakra. The company's share price has recovered from the levels of Rs 39 in October to the current level of Rs 45.

Shareholders could book profit at the current levels and contemplate re-entry at lower levels of around Rs 30-35 as the scrip appears impressive from a dividend yield perspective.

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