TVS' Venu Srinivasan: An Amazing ride

On May 1, the Venu Srinivasan-headed TVS Motor Company trashed the last of its historical baggage. It had announced in September last that it was breaking up with Suzuki Motor Corporation, its joint venture partner of 19 years, but it was only on the last day of April that the relationship technically ended-TVS paid the last of its royalty instalments to Suzuki on April 30, 2002. Thus, May Day-a holiday for TVS on account of Workers Day-ended up being a twin-celebration for the company that started the 100-CC motor cycle revolution in the country.

AX 100 was the name of the motor cycle, although almost everyone referred to it as Ind-Suzuki, and it was the first in a line of successful double-barreled-brand-name offerings (Hero Honda, Escorts Yamaha, Kawasaki Bajaj) that have, to date, sold over 24 million and altered the very complexion of traffic on Indian roads.

The fall from grace of TVS Suzuki, as the company was then called, was copiously chronicled.

Quick retake: insufficient presence in large northern markets...late to react to the industry's shift to four-stroke bikes...perception of being a stodgy company. And while whispers of marital discord abounded, details of how bad things between the partners were became evident only after the September 2001 split.

When the split came, it was just another milestone in TVS Suzuki's careening downhill ride: while sales had increased from Rs 1,621 crore in 1999-2000 to Rs 1,841 crore in 2000-01, profits after tax had declined to Rs 63 crore from Rs 87 crore. The stock had fallen from a October 1999 high of Rs 830 to Rs 82 (the price on the day before the split between TVS and Suzuki was announced). And the company's marketshare had shrunk from a high of 22.8 per cent in 1998-99 to 16.5 per cent in 2000-01.

The break-up was announced in the last week of September and curiously enough, it was the launch, in the first week of the same month, of Victor, the company's first four-stroke 110-cc motor cycle-one developed without any contribution, intellectual or otherwise, from Suzuki-that pulled TVS Motor back from the brink.

In the January-March quarter of 2002 TVS Motor's sales increased 32 per cent, and profits after tax 448 per cent as compared to the corresponding quarter last year. And its stock was in orbit again; Rs 457.25 on May 13, 2002, nearly 400 per cent up from the same time last year.

Srinivasan, a 49-year old balding in the most distinguished way possible-and a man in a hurry whether it is in his role as a former President of the Society of Indian Automobile Manufacturers (SIAM) or the Chairman of the Confederation of Indian Industry's (CII) National Committee on Quality-is, justifiably, over the top. ''Victor has created a new paradigm for the company.'' He is right; in some strange sort of way, the success of the motor cycle seems to have energised the flagging TVS Motor into frenetic activity: production of Victor has been upped from 400-a-day to 1,000-a-day and will further increase to 2,000-a-day by September; the company, once known for its conservative approach to marketing is burning Rs 50 crore in a brand-building exercise (the planned blitzkrieg includes using cricket superstar Sachin Tendulkar as brand ambassador); and Srinivasan is eyeing a slot among the top five motor cycle companies in the world by 2005. For a company for which everything seemed to go wrong in 2001, that's some comeback.

Anatomy Of A Turnaround

At the core of TVS Motor's amazing ride is a R&D initiative the company has steadily, silently, and without any help from its erstwhile partner, nurtured for the past five years. Spectra, TVS' much-vaunted four-stroke scooter that flopped and Victor are both products of this research effort, as will be the six new vehicles and two new platforms that Srinivasan vows to get off the ground by March 2003.

Speed is the new ingredient in TVS' production-mantra. If it wasn't in the past, defends Srinivasan, it was because their partner wasn't exactly big on speed. To back what can otherwise be construed as a bash-the-ex-partner exercise, the man rattles off the details involved in translating Suzuki technology into bikes for Indian roads: first, the Suzuki bikes would have to be adopted to Indian conditions, the changes would be tested on the road for around three months (''Otherwise the Japanese would say we hadn't done our homework''), Suzuki would take between five and six months to validate the changes, ''by which time anything could happen in the market.''

It wasn't all the partner's fault; TVS Suzuki read the signs too late to enter the four stroke-100 cc segment early. And with Suzuki not too keen to dispense with four-stroke technology, TVS Suzuki had no option but to reduce the risk involved in developing a four-stroke engine by first doing one for scooters-hence the Spectra-and then learning from that and graduating to motor cycles. The Spectra experience, says TVS Motor President C.P. Raman, was invaluable. It helped TVS keep the cost of Victor (Rs 41,187 at ex-showroom prices) within bounds, pay attention to the critical customer requirement of mileage, and focus adequately on styling.

TVS Motor's turnaround, then, isn't merely an adventitious occurrence effected by one successful product, but the result of a five-year R&D effort. Expectedly, the company's research and development budget is huge (1.8 per cent of sales or Rs 34.9 crore in 2001-02) and estimated to become bigger-3.6 per cent of sales or Rs 90 crore in 2002-03.

The Marathon Ahead

Victor may have been a success and TVS might have grown its profits 400 per cent in the fourth quarter of 2001-02 but-reality bites-the company is number three, behind Hero Honda and Bajaj Auto, in an intensely competitive market.

Market leader Hero Honda, conscious that Honda Motor Company could well refuse to share technology when its 100 per cent subsidiary in India, Honda Motorcycle and Scooter, starts making motorcycles in 2004, is speaking the R&D language explicitly. Bajaj, whose fortunes dipped with the decline in the scooter market, is making a strong comeback with a clutch of new motor cycles. And competition from Honda and Suzuki looms large.

TVS' reversal of fortunes, believe analysts like Ganesh Relekar, an auto-specialist at Mumbai-based firm Frost and Sullivan, could have more to do with the market than the company. ''Victor has benefited from the overall growth of the motor cycle market.'' And that won't change anytime soon. ''The next three-to-four years promise to be good,'' adds Relekar, ''and those companies that launch more products will do better.''

TVS' six slated launches will help, especially if one of them is in the most happening segment of them all-the value-for-money one (The Rs 30,000-35,000 range) where Bajaj Auto's Boxer and Hero Honda's Dawn are locked in a battle for supremacy. ''Manufacturers are redefining the motor cycle market,'' explains R.L. Ravichandran, Vice President, Marketing, Bajaj Auto. ''The customer needs mileage and reliability, but at a low initial cost; the last is important, as evidenced by the sales of the Boxer, over 50,000 a month.''

''Bajaj has captured the value-for-money momentum,'' agrees Relekar of Frost & Sullivan.

Max 100, a two-stroke motor cycle priced at around Rs 30,000 is TVS' offering in this segment, and while it continues to sell between 25,000 and 30,000 units a month, the company is conscious that it will have to replace it soon with a four-stroke equivalent at a similar price point.

A greater challenge for Srinivasan will be to reduce TVS' dependence on mopeds and scooters, which contributed nearly half of the company's turnover in 2001-02. Neither market is growing-the moped one is shrinking a trifle faster than the scooter one.

Still, some equity analysts believe TVS, which is investing Rs 200 crore in doubling its motor cycle manufacturing capacity from 600,000 to 1.2 million units, has what it will take to succeed. A Kotak Mahindra analyst strikes a bullish note: ''Scaling up is important. The industry is highly competitive, and if it ramps up fast, TVS Motor will be able to maintain its momentum. But it won't be easy.'' Says Ravikrishnan Aditya if Navimarkets: ''The company can increase its profits through cost-cutting and from negative royalty outflow. We expect a 50 per cent compounded annual growth rate in sales between 2002 and 2004.'' That and JM Morgan Stanley's 'Buy' recommendation on the scrip (price target: Rs 548) should be music to Srinivasan's ears.

For years, the good-humoured Srinivasan has chaffed at being called Mopedmannar (Tamil for The King of mopeds). Now maybe, just maybe, he can live that sobriquet down.