Telco: Concerns amidst positives - 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?  

Telco: Concerns amidst positives

Apr 1, 2002

Tata Engineering (Telco), the commercial vehicle major has had a mixed year. After remaining depressed over the last two years, commercial vehicles (CV) sales gained momentum in FY02. But after rising for five consecutive months, CV sales declined notably in February 2002. This has come as a surprise to many. Nevertheless, Telco has managed to increase market share during the same period.Telco witnessed a 1.1% fall in medium and heavy commercial vehicle (M/HCV) sales to 5,301 units in February 2002 as against a 20.0% rise in sales for the same in January 2002. While domestic sales fell by 6.3% in Feb'02, this was more than compensated by a robust growth in exports. Exports rose from 69 units in Feb'01 to 327 units in Feb'02. However, the company is expected to close FY02 with 9.2% growth in volumes. Cumulative volume growth till February 2002 for Telco stood at 51,049 units as compared to 47,012 in the corresponding period last year, a growth of 8.6%. Having said that, a 8.6% fall in CV sales (industry volumes) has come as a surprise for the markets because the sector seemed on the path to recovery. It remains to be seen whether this is a temporary hiccup or it was on account of sluggish industrial sector.

Volumes at a glance
(Nos)Feb'00Feb'01Feb'02% change*
M& HCVs 6,020 5,360 5,301 -1.1%
LCVs 3,754 3,682 3,225 -12.4%
UVs 3,013 2,882 2,826 -1.9%
Cars 5,345 3,673 6,968 89.7%
Total 18,132 15,597 18,320 17.5%
*Jan'02 compared to Jan'01

But the future growth prospects for the CV segment remain promising. One of the key growth drivers in the future would be replacement demand. Just to put things in perspective, the industry sold close to 479,000 trucks between 1980-90. Even assuming 10% of this as replacement demand over the next five years i.e. around 9,400 units per annum, it would add close to 12% of industry volumes. Telco, with more than 60% market share combined with its pan Indian presence, is well poised to capitalise on any upturn in volumes. Besides, slowly but steadily, demand for higher tonnage and multi-axle vehicles are on the rise on the back of highway development initiatives taken by the government. However, industry growth prospects are being limited on account sluggish macro economic environment. While it is heartening to note that the Indian economy grew by 6.3% in 3QFY02, the fiscal state of the economy coupled with its high dependence monsoons are a cause of concern.

Apart from CVs, Telco has benefited from the success of 'Indica V2', the updated version of its passenger car. Cumulative volumes till February 2002 for passenger car has gone up by 45.3% to 57,008 units. Though the company has lined up a number of models including a sports version of Indica and 'Indica Sedan', competition has increased in the small car segment, especially after the success of Fiat's 'Palio'. Fiat has already sold more than 10,000 units. Besides, Telco's market share in the utility vehicle (UV) category has been on the decline over the last two years. Toyota's 'Qualis' and Mahindra's 'Bolero' have stormed ahead of Telco's 'Sumo' and 'Safari'. While Telco's aggressive pricing of 'Safari' might have resulted in higher volume growth, Mahindra is expected to launch a new model soon under its 'Project Scorpio'. Toyota has already launched a petrol version of 'Qualis' and is set to launch an upgraded version with better looks in 2QFY03. All this could dent Telco's market share even further.

Year to date performance…
(Nos)*FY00FY01FY02% change**
M& HCVs 63,701 47,012 51,049 8.6%
LCVs 32,107 34,546 26,438 -23.5%
UVs 28,011 27,057 23,465 -13.3%
Cars 48,428 39,247 57,008 45.3%
Total 172,247 147,862 157,960 6.8%
*Cumulative figures till February 2002
**FY'02 compared to FY'01

However, led by higher CV and passenger car sales, Telco is expected to report a good fourth quarter performance. Thanks to the vendor pruning exercise and other costs saving initiatives, operating margins are also expected to improve notably. After touching Rs 153 in February 2002, the scrip has been languishing at Rs 120 levels over the last few weeks. The fall in CV sales in Feb'02 seems to have injected uncertainty over the sustainability of volumes in the futures. Nevertheless, given the strong presence of the company in the CV segment, the long-term prospects remains positive. Given the competitive passenger car segment, future growth prospects of its passenger car and UV segments clearly lie in successful new model introductions. To that extent, the risk profile of the company also increases.

Equitymaster requests your view! Post a comment on "Telco: Concerns amidst positives". Click here!


More Views on News

TATA MOTORS Announces Quarterly Results (2QFY20); Net Profit Up 117.4% (Quarterly Result Update)

Oct 29, 2019 | Updated on Oct 29, 2019

For the quarter ended September 2019, TATA MOTORS has posted a net profit of Rs 2 bn (up 117.4% YoY). Sales on the other hand came in at Rs 654 bn (down 9.3% YoY). Read on for a complete analysis of TATA MOTORS's quarterly results.

TATA MOTORS Announces Quarterly Results (1QFY20); Net Profit Down 58.4% (Quarterly Result Update)

Jul 29, 2019 | Updated on Jul 29, 2019

For the quarter ended June 2019, TATA MOTORS has posted a net profit of Rs 34 bn (down 58.4% YoY). Sales on the other hand came in at Rs 615 bn (down 8.4% YoY). Read on for a complete analysis of TATA MOTORS's quarterly results.

TATA MOTORS 2018-19 Annual Report Analysis (Annual Result Update)

Jul 5, 2019 | Updated on Jul 5, 2019

Here's an analysis of the annual report of TATA MOTORS for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of TATA MOTORS. Also includes updates on the valuation of TATA MOTORS.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why am I Recommending Caution? (Fast Profits Daily)

Sep 9, 2020

This is why I have changed my short-term view on the market.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 18, 2020 (Close)


  • 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