Chennai-based two and three-wheeler maker TVS Motor Company has set aside Rs 300 crore capital expenditure (capex) for FY21 on the hope of a demand revival in the domestic market in the coming months.
This is the lowest capex lined up by TVS in five years and less than half compared to last year when it spent Rs 719 crore including on new product development.
The expectation of a normal monsoon, uptick in rural demand and demand driven by the need for personal mobility following the need to follow social distancing norms due to COVID-19 pandemic are some positive takeaways for the FY21 outlook for the company.
KN Radhakrishnan, Director and CEO, TVS Motor Company said: “We are cautiously optimistic about the second half of the year while the first half will remain muted. The premium space should do well for products like Apache and Ntorq. Rural penetration is going up and there is an expectation of a normal monsoon which should also augur well for demand. The capex for this year will be Rs 300 crore.”
Radhakrishnan was talking to analysts on the sidelines of announcing the January-March quarter results. The company posted 47 percent fall in consolidated net profit to Rs 74 crore compared to the same period last year.
The maker of Jupiter and Scooty brand of scooters had to provide an additional discount of Rs 22 crore to dealers to liquidate the BS-IV stock of vehicles during the March quarter. “If lockdown was not there we would have sold off all the BS-IV in 4 days of March,” Radhakrishnan said.
TVS claims that 84 percent of the volumes in Q4 were of the BS-VI variety on which there was already a price premium of 10-12 percent.
The March quarter also saw the first-ever acquisition by TVS with the buyout of Norton of the UK. While TVS declined to provide any future plans on Norton such as product launches or new investments, it noted it had bought the business assets of Norton and not the company or its liabilities.
The reduced capex by TVS mirrors the decision taken by other automotive companies who have so far announced their results. Maruti Suzuki, Apollo Tyres, Bajaj Auto and Mahindra CIE have announced significant reductions in capex for FY21.
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