Tata Engineering (Telco), the market leader in the commercial vehicle segment, has reported a good performance for the third quarter ended December 31, 2001. While sales have risen by 16%, a sharp expansion in margins has enabled the company to halve its net loss for 3QFY02. However, the performance is below expectations.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
The reasons for this sharp rise in sales are multifold. For one, after prolonged sluggishness, demand for medium and heavy commercial vehicle sales (M/HCVs) gained momentum in 3QFY02. Being the market leader in both the segments, Telco has reaped the benefit of the upturn. CV sales have gone up by 11% to 20,685 units. Thanks to the successful launch of its passenger car, 'Indica V2', sales have almost doubled in 3QFY02. Telco had outperformed all other passenger car in 'Segment B' in the last three months.
UVs and passenger cars
Source: Company's website
However, the slowdown in the global economy seems to have resulted in subdued export performance. Though passenger car division has performed extremely well, demand for utility vehicles and light commercial vehicles continue to remain sluggish. LCV and UV sales have fallen by 18% and 11% respectively in 3QFY02. Despite almost 20% rise in volumes, turnover has increased by only 16%. This indicates that competition and a weaker demand scenario have exercised a downward pressure on prices.
Telco's cost saving initiatives and value engineering efforts have also yielded positive results. Operating margins have gone up from 4% in 3QFY01 to 8% in 3QFY02, which is higher than what we expected. Interest costs have remained at the previous years' levels but they are expected to fall notably for FY02. The company has plans to repay debt worth Rs 2 bn in the current fiscal from the rights issue proceeds. Telco raised Rs 6,720 m via a rights issue of convertible and non-convertible debentures with an option to exercise the convertible warrants of Rs 3,070 m at a future date. The issue which closed on November 9th, 2001 was fully subscribed.
But the performance of the company is below our expectations. As against our estimated net loss of Rs 2,431 m for FY02, the company's net loss for the first nine months of the current fiscal stands at Rs 2,164 m. The stock currently trades at Rs 120 implying a price to book value of 0.9 times.
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