Rolling Wheels

Three years ago, if one had the foresight and good fortune to pick up shares of Madurai-based TVS Srichakra, one would be sitting pretty today. In spite of recent turbulence in the market post-demonetisation, shares of TVS Srichakra have risen more than 1,000 per cent in the past three years compared to a mere 25 per cent rise in the BSE Sensex. While share price movements might not always be an accurate barometer of changes taking place in a company, it is true in the case of TVS Srichakra.

TVS Srichakra sells tyres under the brand name TVS Tyres and exports under the brand TVS Eurogrip. The tyre market in India is intensely competitive with the presence of both local biggies such as MRF, Apollo, CEAT, and JK Tyres, as well as international players such as Michelin, Bridgestone, and Continental, among others.

TVS Srichakra, though, operates only in the two-wheeler and three-wheeler tyre market. It has nearly 25 per cent share of the overall market in the original equipment manufacturer (OEM) space. Although part of the TVS Group, Srichakra supplies its tyres to every OEM major in the two-and three-wheeler categories including Honda Motorcycle & Scooter India, Hero MotoCorp, Bajaj Auto, Yamaha, Mahindra and, of course, TVS Motors. TVS Srichakra has also entered into an agreement with Michelin to contract-manufacture tyres for the French company.

A couple of factors have contributed to Srichakra delivering an outstanding performance in the recent past. The overall buoyant growth of the two-wheeler industry over the past few years has meant that as the lead supplier in the OEM category, it has enjoyed good demand for its products. Also, soft rubber prices and low crude oil prices, both key raw materials in the manufacture of tyres, have benefitted the company.

While end-user market growth and lower cost of raw material have positively impacted most tyre manufacturing companies, what has set TVS Srichakra apart is its greater thrust to grow the after-market replacement segment. While it is the leader in the OEM supplier category in its space, it is only the third largest player in the replacement tyre market.

Obviously, the margins provided by OEMs are relatively low compared to the after-market. From just 20 per cent of its sales coming from the more lucrative after-market even a couple of years ago, it has increased this to 30 per cent.

Shobhana Ramachandhran, the soft-spoken Managing Director of TVS Srichakra and the granddaughter of TVS Group's founder Sundaram Iyengar, says that this change of market-mix to address more of the lucrative after-market sales and better operational efficiencies has helped improve numbers. Tyre players have had to guard against dumping by international competitors. Unlike China, which is feared for dumping tyres below cost in four-wheeler category, it is Korean companies that are seen as a threat in two-wheelers.

Pointing out that TVS Tyres has been adapting and even leading changes happening in the marketplace, Ramachandhran says: "Now there is a growing market to address in the 125-cc to 400-cc vehicle category, which demands more premium tyres. Also, a shift is happening from tube to tubeless tyres." Which is why most players are also introducing radial tyres for two-wheelers.

While the company has not fully disclosed the terms of the agreement with Michelin, Angel Broking in a research report on the company said it this understanding that helps in providing greater revenue visibility.

TVS Srichakra also gets about 10 per cent of its revenues from exports to markets like the US, Europe, South America, Africa and Australia. For the export market, the company manufactures industrial pneumatic tyres, farm and implements tyres, skid steer tyres, multipurpose tyres and flotation tyres apart from other specific varieties. Ramachandhran says that exports have been impacted due to some of the key markets either turning protectionist or economy growing at a slower pace than anticipated earlier.

The company, which employs about 4,000 people, has two manufacturing plants at Madurai and at Pantnagar in Uttarakhand. It has also recently outlined a capital expenditure plan of nearly `160 crore to step up its manufacturing capacity from 2.3 million tyres a month to 2.5 million tyres a month.

Ramachandhran says that there are no plans to get into four-wheeler tyres, for now. "We intend to continue strengthening our operations where we already have a significant presence."

A growing two-wheeler market, stable raw material prices, changing market mix to emphasise better margins, and a management committed to improve operational efficiencies means that TVS Srichakra is likely to continue delivering good news to the market. ~

@venkateshababu