Cost reduction programme plays key role in helping TVS grow EBIDTA

Despite falling sales and deep discounts being offered by its competitors, TVS Motor managed to improve its margins by 21 bps year-on-year to 8.8 per cent during the quarter ended September 2019. Apart from higher prices and lower raw material costs, the company's 8-quarter-old cost reduction programmes played a key role in the achievement.


While the product mix gave an advantage of around 0.4 per cent, the company increased the price by 0.1 per cent during first quarter and 0.3 per cent in second quarter. Imports also fell from 14 per cent to 10 per cent.


K N Radhakrishnan, TVS Motor's President, CEO & Additional Whole-Time Director, said the company's overall focus on building brands, exports market (grew by 4 per cent), cost reduction initiatives, have helped it and will continue to do so.


"Everywhere there is a strong focus on cost reduction, including the employees cost. There is a focus on overall fixed cost also and we are trying to bring down. Overall there is a full focus on cost reduction, which we started about eight quarters back, that is showing the results now," he said.


Speaking on the improvement the in gross margin, he said that during the second quarter of current fiscal year, compared to the same period last year, cost reduction played a major role, while raw material prices did not come down much.


However, material cost reduction overall has come down by almost 1.2 per cent. It is a combination of the value addition and value engineering, looking at ways of weight reduction of the vehicle, alternate sourcing,  increasing localisation, content improvement. A lot of initiatives on the fixed cost side were also taken. 


"The material cost reduction is not content reduction. We don't devalue a product through material cost reduction. Material cost reduction include VA/VE (value addition/value engineering), process improvement, looking at what all things we can do in terms of alternate sourcing, also looking at import content reduction. So these are the initiatives. It's basically reducing the rate, not devaluing the product," said Radhakrishnan. 


“The material cost reduction, whatever we are doing, we will sustain and we will continue to focus on that,” said Radhakrishnan, during recent investors call.


Commodity prices are softening and the benefit of that going forward will be better than the prices in second quarter of this year.