Tata Engineering (Telco) has reported a stellar performance for FY02. The company's net loss, which stood at Rs 5 bn last year has come down to Rs 537 m in FY02. The sharp spurt in sales was led by the run-away success of 'Indica V2' as well as recovery in commercial vehicle (CV) sales. The results are above our expectations.
Operating Profit (EBDIT)
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The following table highlights the company's performance in FY02. Passenger car sales stood at 66,400 units as compared to 44,500 units in FY01, a rise of 49%. Car volumes averaged at around Rs 5,600 units per month and ever since the company launched 'Indica V2', the improved version, volume growth has been robust. The recovery in CV demand also enabled Telco to post higher volume growth. Despite weakness in demand for CVs in the last three months, CV sales are expected to grow at 5% in FY03 backed by demand for replacement segment and supported by increased volume growth from higher tonnage CVs.
Volumes in perspective...
Benefits from voluntary retirement scheme (VRS), vendor pruning exercise and higher capacity utilisation have helped the company to improve on its margins. The company had planned to retire debts worth Rs 5.2 bn from rights issues proceeds. Actual prepayment for FY02 stands at Rs 4.8 bn. This has resulted in lower interest in FY02. Interest costs would continue to decline in the future also. Extraordinary item here includes provision for contingency and employee separation costs. It has taken a deferred tax credit to the tune of Rs 555 m in FY02, which also trimmed losses.
As far as growth drivers in the future are concerned, Telco has already launched an improved version of 'Indica V2' and the launch of 'Sedan' is also on the cards. The targeted passenger car sales for FY03 is 90,000, which represents a 35% growth. Though the performance of the industrial sector is lacklustre, keeping the existing fleet profile and tonnage requirements in mind, CV volumes would continue to rise in the coming years. With a commanding market share in this segment, Telco is set to benefit from any upturn in industry volumes. However, LCV and UV volumes have been affected due to higher competition. Given the fact that both the divisions contribute to 32% of volume sales of Telco, it is cause of concern. Operating margins is also expected to improve, albeit at a slower rate, in FY03.
The stock currently trades at Rs 134 implying a P/E multiple of P/E multiple of 6.6x annualised 4QFY02 earnings of Rs 20 per share. As per the term of rights issue, out of 89.4 right-convertible and non-convertible allotted, 63.9 debentures were converted into ordinary shares on March 31,2002 resulting in an increase in the paid-up share capital to 319.7 m shares. Telco has not declared dividends for FY02.
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