TVS Eyes Higher Share of Premium Segment

TVS Motor’s Aspiration for Greater Premium Motorcycle Market Share: Implications for Retail Investors, Industries, and Long/Short-Term Outcomes

Table of Contents

Analysis for Layman

TVS Motor, a prominent two-wheeler manufacturer, currently holds the second position in India’s growing premium motorcycle segment, which is expanding at a rate of 10%. The company now aims to increase its market share in this category to enhance profitability. Premium motorcycles, priced above ₹1 lakh, such as TVS’ Apache RR310 and BMW Motorrad bikes sold in partnership with TVS, offer higher profit margins. Although premium motorcycles represent a small portion of the overall two-wheeler market, their sales are rising rapidly, driven by aspirational buyers. TVS also exports its motorcycles, including premium models, to around 55 countries, contributing to its global scale.

Impact on Retail Investors

For retail investors in TVS Motor’s equity, the company’s commitment to the premium motorcycle segment demonstrates its determination to gain market share from the leader, Royal Enfield, and compete with rivals like Bajaj Auto’s KTM and Triumph lines. This signals confidence in the face of the impending disruption from electric vehicles (EVs). Premium internal combustion engine (ICE) models are expected to experience stronger demand in the near term. Additionally, this pivot helps reduce dependence on mass-market products, which are vulnerable to economic slowdowns. With TVS’ export footprint spanning over 50 countries, macroeconomic risks are balanced out. However, the intensified focus on the still-niche premium category could potentially divert resources away from mass-volume products in the 110-125cc segments, which drive overall two-wheeler demand and sales. The stock’s upside depends on the success of this strategy.

Impact on Industries

The two-wheeler industry stands to benefit from TVS Motor’s more aggressive approach to the premium motorcycle market, as it provides a wider choice for enthusiasts and contributes to the growth of this category. Component manufacturers closely associated with TVS, such as Sundram Fasteners, Wabco India, and tube producer Chennai Petroleum, also stand to gain. However, the shift towards premium bikes may dilute attention to mass-market segments (100-125cc), where efficiency and supply-chain stability are crucial due to scale. Furthermore, the expected entry of EV models from mainstream bike manufacturers could potentially shorten the premium ICE bike upgrade cycle. Auto dealers affiliated with TVS may need separate dedicated showrooms for premium bikes to avoid brand dilution, involving significant investments. Export markets that TVS targets, such as Latin America, face macroeconomic challenges that offset the benefits of market diversification.

Long Term Benefits & Negatives

Over the long term, TVS’ pivot to premium bikes helps protect against vulnerabilities in mass-market commodity segments during economic slowdowns and enhances brand equity during growth phases. Premium bikes offer higher margins, helping defend against rising input costs by allowing for higher prices. However, the rise of electric bike options could disrupt the upgrade cycle to premium ICE models over several years. Unless TVS develops a compelling EV premium strategy, the window of opportunity for its Apache and BMW lines may close sooner than expected. Sustaining exports to over 50 countries in the long term requires significant investments in distribution and service support. While short-term opportunities seem apparent, long-term challenges loom that could impact metrics like market capitalization and price/earnings multiples.

Short Term Benefits & Negatives

In the immediate 12-24 month horizon, key positives include TVS capitalizing on India’s momentum in the premium motorcycle market, aided by improved chip supply and signs of economic recovery in 2024. Planned new variants under the Apache brand and the BMW Motorrad joint venture leverage brand equity with enthusiasts. However, these efforts come at a time of margin pressure and heightened competition from EVs—factors that could divert focus back towards mass-volume products in the 100cc and electric segments, which are critical for overall profits. TVS’ track record in sustaining a share of the premium category remains unproven, as past attempts have faltered. Until dedicated showrooms and export volumes scale up, the premium segment strategy may not significantly impact overall sales and earnings. Additionally, a global recession that shortens the upgrade cycle could undermine the derisking benefits of export-led growth.

Potential Impact of TVS’ Premium Segment Focus on Companies:

Indian Companies Gaining:

TVS Motor Company: Increased focus on the premium segment, which is growing faster than the overall market, could lead to higher market share and revenue growth. Successful execution could boost investor confidence and potentially increase the stock price.
Bajaj Auto Ltd.: Current leader in the premium motorcycle segment. TVS’s entry could intensify competition, but Bajaj’s established brand and diverse product portfolio could help maintain their position. Strong performance could potentially attract positive investor sentiment.
Hero MotoCorp Ltd.: Limited presence in the premium segment but has resources and brand recognition to potentially enter. TVS’s success could encourage them to follow suit, leading to potential future growth opportunities. Positive developments could attract investor interest.
Component suppliers for premium motorcycles: Companies supplying parts like high-performance engines, advanced suspension systems, and premium design elements could benefit from increased demand driven by TVS’s efforts. Strong financial performance could potentially attract positive investor sentiment.
Luxury motorcycle retailers: Increased focus on premium motorcycles could boost sales in their showrooms, potentially leading to higher revenue and profitability. Positive financial results could attract investor interest.

Indian Companies Potentially Losing:

Mass-market motorcycle manufacturers: Increased consumer interest in the premium segment could potentially divert demand away from cheaper commuter motorcycles, impacting sales of companies like Bajaj Auto (for lower-end models) and Hero MotoCorp. Continued strong performance in their core segments could mitigate this impact and maintain investor confidence.
Smaller motorcycle manufacturers: Increased competition from TVS in the premium segment could make it harder for smaller players to gain traction, potentially impacting their market share and profitability. Diversifying product offerings or focusing on niche segments could mitigate this risk and attract investor interest.

Global Companies Gaining:

International premium motorcycle brands: Increased interest in the premium segment could benefit players like Harley-Davidson (US), Triumph Motorcycles (UK), and BMW Motorrad (Germany). Rising sales in India could potentially boost overall revenue and attract positive investor sentiment.
Global component suppliers: Companies like Bosch (Germany), Brembo (Italy), and Michelin (France) supplying high-end components for premium motorcycles could benefit from increased demand driven by TVS and potentially other Indian manufacturers entering the segment. Strong financial performance could attract positive investor sentiment.

Global Companies Potentially Losing:

Low-cost motorcycle manufacturers: Increased consumer preference for premium motorcycles in India could potentially impact sales of low-cost motorcycles from companies like Honda Motorcycle & Scooter India (Honda’s Indian subsidiary) and Yamaha Motor India Sales Pvt Ltd. Finding new growth opportunities or focusing on other segments could mitigate this risk and maintain investor confidence.

Remember, this is analysis based on the limited information provided. The actual impact on individual companies will depend on various factors, including their execution strategies, market conditions, and overall economic climate.

Additional Recommendations:

You can consider looking at historical data of TVS’s and other companies’ performance in the premium segment to provide further context.
Analyze the specific features and pricing of TVS’s upcoming premium motorcycles to assess their potential competitiveness.
Monitor market research and consumer sentiment data to gauge the overall reception of TVS’s premium segment push.

I hope this information is helpful! Let me know if you have any other questions.

Citation: ET Bureau. (2023, December 21). TVS Eyes Higher Share of Premium Segment.