It is three days after a spate of product launches in early March by TVS Motor Company, and its Hosur facility is a beehive of activity. Its employees, dressed in sky-blue half shirts and grey trousers, are busy rolling out Flame—TVS’ latest offering, a 125cc motorcycle—off the assembly line. There’s a lot riding on Flame. In a manner of speaking, it is TVS Motor’s very future that is at stake. Just about everyone in the company knows that Flame must not fail in the market, and they seem to have taken this pressure in their stride. So has the TVS top brass, all of whom seem to have an extra spring in their steps. Their body language, too, exudes new-found confidence. “We are on a take-off stage, having benefited from the learning curve and the strong foundation we have laid for a bright future,’’ says Venu Srinivasan, Chairman & Managing Director.
Even a month ago, the mood was sombre at the third-largest manufacturer of two-wheelers in the country. Arch-rival Bajaj Auto had dragged TVS Motor to court over Flame, alleging that the motorcycle used a twin-spark-plug technology patented by it. Even as TVS fought the case in court, it was losing revenue— some Rs 40 crore a month— besides which suppliers and dealers were getting jittery. The delay in launching Flame was even more frustrating for TVS because it knew it had a winner on its hands. Rather than suffer any more loss of revenue and uncertainty, the company decided to tweak the design and launch Flame, on March 10, with a single-spark-plug ignition system. As if to cock a snook at Bajaj, TVS also launched a three-wheeler, long the domain of its Pune-based rival.
The air of confidence over the Hosur plant is reflective of TVS’ belief that it has finally survived its growth pangs and is now in a position to effectively take on competitors such as Hero Honda and unseat Bajaj as the country’s #2 two-wheeler manufacturer. Indeed, Srinivasan is thinking bigger— a whole lot bigger. “We want to be among the top four twowheeler players in the world in the next three to five years,’’ he says with a straight face. TVS currently ranks #8 in the global pecking order of two-wheeler manufacturers, with players such as Hero Honda, Honda, Yamaha, Suzuki and Bajaj Auto way ahead of it.
It is a significant statement from a CEO who is fighting hard to contain his company’s falling market share in the domestic market. Since 2001-02, TVS Motor’s share in motorcycles, the fastest growing segment and which constitutes 84 per cent of the two-wheeler pie, has fallen 6 per cent. In the entry segment, priced below Rs 35,000, its share has declined from 32 per cent (2001-02) to 22 per cent in 2007-08 (April-December), while the fall in the executive segment has been more severe—from 19 per cent in 2003-04 to less than 1 per cent in 2007-08 (April-December).
The profits, consequently, have more than halved from Rs 138 crore in 2003-04 to Rs 67 crore in 2006-07—that’s just 1.7 per cent of total revenues. If protecting its home turf is itself proving to be a challenge, what gives TVS Motor the confidence to dream big? “We now have the required technology, products, people and the commitment it calls to achieve our aspiration,’’ answers Srinivasan.The poblems
To understand what’s now happening at TVS Motor, one needs to step back and look at its troubled past. The company’s problems started off with product failures. Victor, its first indigenously developed product launched in 2001, did brisk business initially (selling as many as 40,000 units per month) before a multitude of problems such as rusting of the exhaust pipe, seepage of water into the petrol tank, malfunctioning of the lock, etc., surfaced and sank the product. “Victor was a good first attempt. It did well initially before we realised that durability of certain parts was not good enough,’’ admits Vinay Harne, Senior Vice President (R&D). If Victor gave the company insight into product design, durability and life cycle, Centra taught it lessons in cost management.
Conceptualised as a mileage bike, it ended up being over-designed and production cost shot up to Rs 33,000 per unit. When it finally hit the market at Rs 36,000 a piece, customers were confused. Entrylevel customers thought it was overpriced, while those looking for a motorbike in the executive segment felt it wasn’t classy enough. It also, to an extent, ended up cannibalising Victor (see Trouble Spots). Failure of Victor and Centra raised questions about the company’s ability to develop products. “The first product that any company in the world makes has gaps that you could not see at the time of the development. We had to learn how to develop a zero-defect product,’’ says Srinivasan.
Even as TVS Motor battled quality, it struggled to reach its new products into the market in time. This left a gaping hole in its product portfolio. Sadly, these gaps occurred in those segments that grew rapidly. Though it was among the earliest to identify the potential of fourstroke technology, it could not get its product ready in time. The twostroke market met an instant death with volumes dropping from 3 lakh units to zero in 18 months flat in the 2003-05 period. At the same time, the market for four-stroke bikes soared. Between 2003-04 and 2004-05, the entry-level segment’s volume almost doubled from 9.9 lakh units per annum to 17.6 lakh units. StaR, TVS Motor’s four-stroke 100cc bike for the entry segment, was nowhere in sight and arrived only towards the end of 2004-05. By then the company’s market share in the segment had collapsed from 32 per cent in 2001-02 to as low as 9 per cent in 2004-05. “StaR should have come along with Victor in 2001 but it came only in 2005,’’ rues K. N. Radhakrishnan, the company’s President.
Similarly as the executive segment began to grow rapidly, TVS Motor had no product on offer after Victor’s failure. The segment grew from 25.20 lakh units in 2003-04 to 35.7 lakh units in 2006-07. Victor’s replacement Flame did come but only to get entangled in a patent dispute with Bajaj Auto. Earlier in 2000, the launch of Fiero saw the company notch up a share of 31 per cent in 2001-02 in the premium segment. But its inability to support the product ended its leadership position and its share fell to as low as 2 per cent in 2005-06 before TVS Apache hit the market towards the end of 2005-06.
R. Chandramouli, Senior Vice President (Sales & Service), defends the delay saying, “Premium segment was not our focus then nor is it likely to be in the future. We had to focus on other segments.’’ If there was one reason for these delays, it was the overstretched R&D department. At one point, the R&D team was working on five projects that were diverse in terms of segments (entry, executive and premium motorcycle segments), geographies (neo step-through scooter was being developed for the Indonesian market) and a threewheeler. This put enormous strain causing inevitable delays. Agrees Radhakrishnan: “R&D handled too many projects at the same time.’’
The learning curve
| The three-wheeler gambit|
TVS Motor aims to corner 30 per cent market share by taking on the duopoly of Bajaj and Piaggio.
For a long time now the three-wheeler passenger market has been under the control of Bajaj Auto and Piaggio. But there’s a new rival in town:TVS Motor. On March 9, the company launched its first threewheeler product TVS King. The product promises better fuel efficiency and riding comfort. According to H. S. Goindi, Head of three-wheeler business, TVS Motor plans to sell about 25,000 units a year by leveraging its existing dealerships and strong presence in the global market. “We are aiming for a 30 per cent market share in India in the next 18 to 24 months,” he adds. The three-wheeler foray seems like a logical next step for TVS Motor. For one, it had a suitable engine to go with it. For another, demand for three-wheelers is on the rise. The passenger segment alone has a volume of 1.7 lakh vehicles (both petrol & diesel) while goods carrier version sells another lakh units. Threewheelers also have a good export market of almost 1 lakh units. Says Ravi Chopra, Chairman and Managing Director, Piaggio Vehicles. “I see demand increasing in the next 10 to 15 years at 10 per cent per annum. If you have the right product with the right technology at the right price, it will sell.” There is room for more players and TVS Motor’s entry will not only increase competition but also grow the market, he adds.
Has TVS learnt its lessons? It has, says Harne. As soon as Victor’s quality started slipping, a task force on quality called ‘Global Competitiveness Task Force’ was set up. A large pool of engineers worked hard for over three years to improve quality among suppliers, and in the design and development of products. The task force took help from TPM (total productive maintenance) and R&D experts from around the world. “StaR was born out of the Victor and Centra experience. So have Scooty Pep, Apache and Flame. All these products are doing well in their respective segments,’’ he points out. StaR has boosted the company’s market share from a low 9 per cent in 2004-05 to 26 per cent in 2006-07 in the entry segment. Launched with a five-year warranty, it has the lowest warranty claims in the industry today, says Srinivasan.
Scooty Pep was ranked #1 brand by JD Power in its SCIS Scooterette/scooter study 2006. Apache, too, has bagged the CNNAutocar Bike of the Year and Best Design Award from BBC-Top Gear. It has lifted the company’s share in the premium segment from 2 per cent in 2005-06 to 15 per cent in 2006-07. “With all the products firing, we are in for exciting times, we hope to regain our 19 per cent market share in the executive segment next year itself,’’ says a confident Radhakrishnan.
Moreover, the battle-hardened R&D set-up is already working on products that are due five years hence. “We are second in terms of number of patents applied for in the Indian automobile sector, next only to Tata Motors,’’ points out Srinivasan. The company, according to its last annual report, has applied for 150 patents.
The immediate challenge that TVS faces is the weakening demand for two-wheelers due to a squeeze on consumer credit. The company has been hurt the most with entry-level motorcycle volumes declining by about 30 per cent on account of strong rural presence. If the sluggishness in demand lasts longer or spreads to other segments, TVS Motor’s recovery game plan will be derailed. “The Budget has given a fair amount of support to the farmers and the Pay Commission recommendations will hopefully be implemented soon. We are confident of not seeing a further fall,’’ says Srinivasan. Agrees N.K. Rattan, Head (Sales and Marketing), Honda Motorcycle & Scooter India: “Free availability of finance and heavy discounting by the industry led to the entry-level segment getting overharvested.
What we are seeing now is a temporary correction.’’ TVS will desperately hope that these words come true. If that happens and all its products deliver as expected, then its aspiration of being among the top four two-wheeler manufacturers in the world will come within the realms of possibility.