Tata Engineering may hive off 'Indica' - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Tata Engineering may hive off 'Indica'

Feb 22, 2000

The Tata engineering (Telco) stock flared up by 8% during the last trading session on unconfirmed reports that the company may be looking at hiving off its car project to a 100% subsidiary. The company has denied all such reports and stated that the car venture was being made a strategic business unit (SBU). 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 (8% market share).

Telco's car project has been much admired by the public at large. Company watchers, analysts in particular, however were skeptical from the start regarding the company's car venture. The concern emanated from the burden the project would have on the overall profitability of the company rather than the success of the product. A new project would entail large capital expenditure (Rs 17 bn) that would translate into higher interest and depreciation costs.

Its been slightly over one year since the launch of the car and the figures reveal it all.

(Rs m) 3QFY2000 3QFY1999 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%  

Hiving off the car project would result in an immediate reduction in the company's interest and depreciation burden, which have put under pressure the profitability of its commercial vehicle division. Further more, the hive off would open up the possibility of participation of an international auto major. Telco would also benefit from the inflow of cash resources once it dilutes its stake in the subsidiary.

The hive off is widely desired. However, the company has preferred to adopt a cautious approach by first converting it into a SBU. In view of the highly competitive scenario in the passenger car market, it is more likely than not that the company will hive off the car project. The issue is the timing of the hive off.

Market view:
Given the strong CV demand, and robust Indica sales, analysts have recommended a 'LONG TERM BUY' on the stock. Concerns about the capitalisation of the Indica and its break-even still persist.

Equitymaster requests your view! Post a comment on "Tata Engineering may hive off 'Indica'". Click here!


More Views on News

Massive Surge in the Shares of Tata Motors Today. Key Factors Favouring the Rally (Views On News)

Oct 13, 2021

Tata Motors zooms 23% after report of TPG investing Rs 75 bn in EV arm.

Tata Motors Fails to Take Advantage of Rising Demand as Chip Shortages Hurt (Views On News)

Jul 27, 2021

A global chip shortage, Covid uncertainty, and commodity inflation are likely to impact Tata Motors in the short term.

TATA MOTORS 2020-21 Annual Report Analysis (Annual Result Update)

Jul 26, 2021 | Updated on Jul 26, 2021

Here's an analysis of the annual report of TATA MOTORS for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of TATA MOTORS. Also includes updates on the valuation of TATA MOTORS.

India's Edge in Electric Vehicle Stocks podcast (Views On News)

Sep 9, 2021

India has a huge advantage in using climate friendly EV batteries.

4 Ways to Play the EV Opportunity (Views On News)

Sep 6, 2021

The EV disruption is happening faster than you think. Here's how you can ride the Indian EV megatrend.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 7, 2021 03:29 PM


  • Track your investment in TATA MOTORS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks