Indica accelerates TELCO's losses - Views on News from Equitymaster

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Indica accelerates TELCO's losses

Jan 25, 2000

Automobile major Tata Engineering & Locomotive Company (TELCO) has posted a loss of Rs 603.4 m in 3QFY2000. However, sales turnover was a big consolation for the company as it posted a 52% leap to Rs 23.9 bn. TELCO is India's largest medium/heavy commercial vehicles (M/HCV) (65% market share in September 1999) and light commercial vehicles (LCV) (63% market share) manufacturer. It also manufactures utility vehicles (28% market share) and passenger cars (7% market share).

TELCO's finance costs declined 8.4% to Rs 993.8 m, however depreciation climbed 43.6% to Rs 985.2 m.

(Rs m) 4QFY2000 4QFY1999 Change
Net Sales 23,901.7 15,717.4 52.1%
Other Income 50.0 217.4 -77.0%
Expenditure 22,576.3 14,379.5 57.0%
Interest 993.8 1,085.2 -8.4%
Depreciation 985.2 685.9 43.6%
Profit before Tax (603.6) (215.8) 179.7%
Tax - -  
Profit after Tax/(Loss) (603.6) (215.8) 179.7%
Net profit margin (%) -2.5% -1.4%  

Indica continues to eat into the company's margins. Strong CV sales contributed to the 52% jump in TELCO's turnover, but could not offset the decline in profitability. The company failed to absorb the full commissioning costs of the Indica, and so long as it struggles to do that, profitability seems distant. However, the Indica is operating at full capacity and has even bagged some export orders for Malta, being the first private sector car manufacturer to bag an export for a European location.

TELCO is looking to break-even by the end of FY2000, but given the competitive scenario in the passenger car segment (especially the small cars) this may seem a little too optimistic.

Robust CV demand will continue to boost the company's topline (sales). December 1999 witnessed 79.7% appreciation in TELCO's M/HCV sales. As cement, steel demand continue to firm up, M/HCV sales will clock above-average growth. However, TELCO will witness a decline in margins from the M/HCV business after installing the new Cummins engines in its models, which have added to the cost.

Market view:
Analysts have flagged a 'LONG TERM BUY' on the company due to its disappointing 3QFY2000 results. Analysts are bullish on the company's improved CV performance and strong Indica sales and feel that things can only get better for the company from here on.

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