M&M to rectify Stallio gearbox

Automaker Mahindra & Mahindra (M&M) has offered to rectify a problem in the gearbox of some of its 110cc Stallio motorcycles. The Stallio marked the entry of the maker of utility vehicles and tractors into the highly competitive motorcycle market.

Responding to a query on problems with the Stallio gearbox, M&M in a statement said: “We... are aware that certain parts of the bike require some fine tuning and adjustment in a small proportion of the product. We are proactively addressing the same.”

However, the company did not furnish any details on how many motorcycles have a gearbox problem and need to be rectified.

Since its launch in September 2010, M&M has sold over 5,135 Stallios until January this year. However, average sales of the Stallio during the last two months have been less than 400 units a month. In comparison, the country’s leading two-wheeler makers like Hero Honda, Bajaj Auto, TVS Motor and Honda sell an average of over 100,000 bikes a month in the 75-125cc segment.

While recalls, repairs and retrofits are fairly common in the passenger car industry — recent domestic instances include Honda’s recall of some versions of the City and Tata Motors’ retrofit of the Nano — there have been very few cases for motorcycles.

M&M has also encountered delivery problems with the Stallio. Its two-wheeler dealers have been asking potential buyers to wait for at least a month for delivery. The bike costs Rs 52,300 (on the road in Mumbai). The company maintains that demand for the bike has been very strong since launch, and that it has been unable to meet it because of inadequate supply of parts by vendors.

“When we launched the Stallio, the response we received was very positive and we had significant demand. However, today we are faced with certain supply-chain related constraints of some critical components. This is a short-term phenomenon and will be sorted out latest by June 2011,” M&M stated.

The company is trying to resolve supply-side issues by ramping up production at its facility in Pithampur near Indore. Brakes have also been applied to plans to add new dealers, particularly in areas where the brand has a strong pull, because of low volumes.

Most of M&M’s stable of two-wheelers includes automatic scooters such as the Rodeo, Duro and Flyte. Motorcycles are more popular in semi-urban and rural areas, as is evident from the success of models belonging to Hero Honda and Bajaj in those areas.

Diversification helps TVS Motor

TVS Motor Co. Ltd seems to be reaping the benefits of diversification, but higher input costs are threatening to puncture its profitability.Electric bicycles in India

In the past four years, as its market share in the motorcycle segment fell, TVS has been aggressively selling scooters and three-wheelers. While sales in the bike segment grew 40% from a year ago, sales of scooters and three-wheelers grew faster.

TVS’ revenue for the three months ended December grew 51% from a year ago. Its average realizations also improved 7% over the period, helped by a price hike in November and an increasing proportion of sales in scooters and three-wheelers. Pune Used Cars

However, operating profit expanded only 57%, while operating margin improved to 6.55%, an increase of 24 basis points over December 2009.

That’s because TVS was stymied by rising input costs. Raw material cost as a percentage of net sales rose to 76.8% in the December quarter against 68.5% a year ago. Consequently, TVS’ revenue for the three months ended December grew 51% from a year ago.

While net profit growth at Rs. 55.75 crore was up 137% from a year ago, it was pushed up by a Rs. 7 crore increase in investment income and Rs. 9 crore savings on interest expenses.

These numbers were better than Street expectations only marginally. There was thus not much investor reaction as the stock closed the day 0.98% up, compared with a 0.36% gain for the Sensex.

Investor enthusiasm could have been dimmed by the headwinds facing the two-wheeler segment. Higher inflation and petrol price hikes make owning and operating a two-wheeler costlier, thus crimping demand, while sales might also cool off a bit on a higher base. Rising commodity prices are also an increasing worry—operating margins are down sequentially for both TVS and Bajaj Auto Ltd —that could hurt on costs. Tata Showrooms in India

TVS’ Indonesian operations, too, are not expected to contribute till 2012. However, the stock is trading at a discounted valuation to its peers. Another factor in TVS’ favour is its increasing non-bike portfolio.

Scooters are the fastest growing category among two-wheelers, at 52% this fiscal, and TVS has the second largest market share in the category. Three-wheelers, too, are growing at a healthy 23%. As of now these segments are small compared with motorcycle sales for TVS, but they are increasingly making up for a greater proportion of volumes.