Operating profit margin slumped to 1% in the March quarter in comparison with 3% in the previous quarter.

Since peers Bajaj Auto and Hero Honda have not exactly been setting the market on fire with their performances, the market was not expecting much from TVS Motor.

The Chennai-based two-wheeler maker had posted an operating profit margin of just over 3 per cent in the December 2006 quarter and the market believed it might do somewhat better in March. But no one would have imagined that the company’s margins would be smashed to one per cent.

Volumes were abysmally low, growing at just 5.5 per cent y-o-y, thanks to the decline in volumes for motorcycles. However, due to better realisations from mopeds, the top line grew by about 10 per cent y-o-y to Rs 920 crore.

TVS is obviously struggling to push sales and, moreover, it is selling larger numbers of entry-level products. So it is simply not able to absorb the higher cost of raw materials, and as a result, the net profit has crashed 68 per cent to Rs 9 crore.

FY07 has been a terrible year for TVS with its earnings having been badly dented by about 43 per cent. What’s worse is that there are no signs that earnings will grow in FY08 since the top line is unlikely to grow by more than 7-8 per cent from the Rs 3,855 crore posted in FY07.

The company’s entry into the three-wheeler segment, slated for the second half of the current fiscal should help revive margins. However, the business will obviously take time to stabilise. The competition in the two-wheeler space is only becoming more keen and TVS is going to find it hard to survive. At the current price of Rs 61, the stock trades at 24 times FY08 estimated earnings, which is way too expensive.