TELCO, is India's largest commercial vehicle manufacturer. It dominates the MCV/HCV segment with a market share of 66%, the LCV segment with a 67% market share, and utility segment with 26% market share. It reported a turnover of Rs 87.9 bn in FY2000. Its plants are located at Pune, Jamshedpur and Lucknow.
The main points of Telco's analyst meet are:
In terms of growth in volumes for FY2000, the company expects utility vehicles to grow by 8%, CVs by 12%-15% and passenger cars by 40%-50%.
The company's strategic plan includes restructuring for improved customer focus, continue to enhance product range and managing of CV business cyclicality through introducing wide product range.
The break even point for Indica has been estimated by the company at 90,000 vehicles. This is higher than what the company had estimated earlier as costs related to the car project have gone up. The company expects this to happen by the end of FY2001. The company cannot rule out entering into a joint venture for the car division or spinning off the division into a separate company in future, though currently there are no plans.
In terms of capital expenditure the company is expecting to spend Rs 2 -3 bn per annum, this is mainly on account of normal capital expenditure to be incurred.
In the utility segment, the company will be launching 6 new Sumo variants. To regain its share and increase volumes in this segment the company will be launching the "Spacio", which is a variant of Sumo. It is a product which aims to cater to both the rural and urban market and will hence help the company garner up its market share.
The spin-off of the heavy axles, transmission and machine tools to a separate subsidiary has resulted in transfer of around 4,000 employees to this company.
In the terms of the economy the company expects GDP to grow by 6-7%, oil prices to remain moderate and foreign trade to grow well. This augurs well for growth of commercial vehicle volumes.
Margins of the company are expected to start showing an improvement by FY2002. FY2001 will continue to be a year of restructuring, hence margins will continue to be under pressure.
The company is planning to launch a mid sized car but it will take another 24 months before this happens.
Inspite of strong commercial vehicle sales FY2000, the company’s car division continues to be a drag on profits. The company expects to break even on the Indica by the end of FY2001. Though the growth prospects for FY2001 do not look very attractive as the company would have to continue to bear costs associated with Indica and Cummins engines, we feel that the company will start showing improvement in their margins in FY2002.
On valuation terms, Telco's stock is trading at a price to earnings multiple of 44x FY2000's earnings.
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