Tata Engineering (Telco), has reported a net loss of Rs 5 bn for FY01, on the back of dismal volume growth, lower margins as well as higher amortisation costs on product development expenses on its car project. Besides the decline in other income as well as extraordinary expenses added to its woes. The company's sales fell by 8% to Rs 81 bn for FY01.
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In 4QFY01, its volumes continue to be down as a result of lower exports and passenger car volumes.As a result the company's sales fell by 4.8% in 4QFY01 to Rs 26.4 bn. Lower other income as well as pressure on margins resulted in a 4QFY01 loss of Rs 1,466 m.
UVs & passenger cars
Telco's operating margins for FY01 declined to 5.3%, a drop of 170 basis points on account of lower volumes in its commercial vehicle and passenger car segments and higher emission costs. Through extensive efforts the company has managed to curtail its expenditure through material cost reduction as well as manpower rationalisation by around Rs 2.6 bn in FY01.
Telco's net interest costs went up by 5.7% in FY01, however it has managed to reduce its gross interest charges by Rs 410 m through prudential working capital management. During the year the company has also managed to reduce its forex borrowings.
As a result of higher amortisation of product development expenses for its car project in FY01, the amortisation costs grew by Rs 547.4 m during the year, adding to the company's net loss.
UVs & passenger cars
Telco has lost market share in some of the southern markets to its nearest competitor, Ashok Leyland. The sales tax rationalisation did not affect the southern markets to a great extent as most states were paying higher sales tax. The difference was more pronounced in the northern markets, where Telco has a stronger presence. Hence Telco's market share fell to 63% in FY01 as compared to 66% in FY00.
As these results are worse off than our expectations of Rs 4.1bn, mainly due to higher amortisation costs and lower income. As a result we will need to relook at our projections for FY02 and FY03.
The commercial vehicle and passenger car industry is not showing signs of any improvement currently. Though the company has become aggressive on cost cutting, manpower reduction and efficiency, the effect of this on the company's bottomline seems far away as volumes are on a decline.
Though, it seems that the CV industry is close to the bottom of its trough and is likely to report better volume growth in future, all this depends on an improvement in the country's economic scenario. Unless there is substantial upside to agriculture and industrial growth in the current financial year, Telco's volumes will continue to languish.
On the current price of Rs 68, Telco is trading at 24.4xFY00 EPS of Rs 2.8.
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