Business environment may remain challenging this fiscal due to COVID-19: TVS Motor

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TVS Motor Company expects business environment to remain challenging for most part of the current financial year due to the coronavirus pandemic with chances of some revival only in the later part of the year, according to the company's annual report for 2019-20. Sharing information with the company's shareholders, the two-wheeler major said that good monsoon this year could lead to growth in the agriculture sector, which may help in reviving the two-wheeler industry.

"In 2020-21, the economy will see significant challenges owing to the impact of the COVID-19 pandemic and the resultant interruption to economic activity which is beginning to reopen," TVS Motor Company said.

Restriction on public mobility and impact on many sectors of the economy will affect gross domestic product (GDP), disposable incomes, consumer sentiment and also the auto industry, it added.

"Consequently, a very sharp decline in the first quarter of 2020-21 is expected, which may partially alleviate in the following quarter, with any upside possibilities only playing out in the later part of the year," it noted.

Highlighting the likely impact of economic slowdown on its domestic business, TVS Motor said consumers may like to conserve cash, in view of unforeseen events like potential job loss and salary cuts.

This will lead to delay in purchase of all non-essential durables, and may pose a risk to many industries in the manufacturing sector, including automobiles, it added.

"This may result in delayed recovery of the two-wheeler industry...This could lead to challenges in working capital management in the supply chain. The company is cognisant and is advising dealers and suppliers to make prudent choices in cost reduction and enhance working capital management," the company said.

From the supply side, availability of manpower in tier-2 and tier-3 suppliers affecting the supply of parts and daily operations are likely risks, it added.

The company, however, noted that economic activity and lifestyles will have to be rebuilt factoring in coexistence with COVID-19 with social distancing and work from home practices witnessing greater prevalence.

These new long-term practices of social distancing could see consumer preferences change towards personal mobility, which could prove to provide some opportunity, especially to the two-wheeler industry, TVS Motor Company said.

"The company is cognizant of this opportunity, and well poised to leverage this opportunity with its BS-VI offerings across the widest range of personal mobility needs," it added.

Two-wheelers offer affordable, safe and eco-friendly personal transport and may see less impact due to the need for such solutions, the company noted.

Besides, favourable conditions in the agriculture sector may lead to optimum offtake of two-wheelers in the semi urban and rural areas which remain mainstay of sales in the segment.

"The favourable reservoir levels, good rabi output and possibility of normal monsoon may support agriculture growth. It is to be noted that much of the sale of two-wheelers are in semi-urban and rural areas that could see some benefit of this," TVS Motor Company said.

On overseas shipments, the company said the economic impact of COVID-19 is expected to be more pronounced in the markets of Latin America, whereas the African countries seem to be lesser impacted, and the core demand may return sooner.

"The company has looked at options to minimise the impact by leveraging opportunity in less-affected countries and by launching new products and leveraging financing solutions for customers," it added.

The company also informed the shareholders that the acquisition of the UK-based Norton Motorcycles enhances the TVS's global portfolio bringing in complementary product segments, markets and capabilities.

"The company also believes that Norton Motorcycles can leverage its additional geographical network reach and global supply chain capabilities to expand to new markets and audiences with existing and upcoming products," it said.

TVS Motor Company had acquired Norton in April this year for GBP 16 million (around Rs 153 crore).

In 2019-20, TVS sold 24.1 lakh units of two-wheelers in the domestic market as compared with 31.4 lakh in 2018-19.

The dip in domestic sales was mainly due to falling consumer sentiment and rapid increase in the cost of ownership towards higher mandatory insurance costs and enhanced safety norms, the company said.