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Telco commercial vehicle sales slowdown

Jul 11, 2000

Tata Engineering and Locomotive Company Ltd (TELCO)'s aggregate volumes for the month of June'2000, have reported a decline of 11% YoY. The segments which have contributed to this fall are heavy, medium and light commercial vehicles (H & MCVs). On the positive side utility vehicles have gone up by 5% YoY and passenger cars by 12% YoY for the month of June'2000. 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 64 bn in FY99. Its plants are located at Pune, Jamshedpur and Lucknow.

% change
M & HCV 5,676 3,850 -32.2%
LCV 2,974 2,700 -9.2%
Utility 2,100 2,204 5.0%
CV and utility sales 10,750 8,754 -18.6%
Cars 3,656 4,096 12.0%
Total sales 14,406 12,850 -10.8%

On a year to date basis the decline in H& MCVs has been lower at 4% as in the months of April and May'2000 cumulatively they reported a growth of 12% YoY. Hence the figures of June'2000 do signal a slowdown in sale of commercial vehicles. On a month on month basis for June'2000 over May'2000, H & MCVs have grown by only 2%, while for the corresponding period of the previous year (June'99 over May'99) the growth was 55% MoM.

  April-June (YTD) volumes    
(% change)
(% change)
M & HCV 8,105 12,349 11,327 52.4% -8.3%
LCV 7,658 7,817 7,008 2.1% -10.3%
Utility 7,843 5,409 6,158 -31.0% 13.8%
CV and utility sales 23,606 25,575 24,493 8.3% -4.2%
Cars 279 7,820 14,450 2702.9% 84.8%
Total sales 23,885 33,395 38,943 39.8% 16.6%

The strong growth in FY2000 can be attributed to the pick up in the economic scenario. This resulted in higher demand for commercial vehicles during the year. The growth figures for FY2000 over FY99 are high as these are on a lower base in FY99, when the commercial vehicle segment went through a tough time as it was saddled with low demand and high dealer inventories.

TELCO's market share in the utility vehicle segment is expected to go up in the current year. The company had lost market share in FY2000, but has become aggressive on product launches. It has successfully launched the Sumo variants to counter the competition for different market niches. The slowdown in commercial vehicle sales can be attributed to imposition of unified sales tax rate in some parts of the country. This has acted as a dampener on sales as price of commercial vehicles has gone up.

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. FY2001 does not look very attractive as the company would have to continue to bear costs associated with Indica and Cummins engines. As a result the company will start showing improvement in their margins and profitability FY2002 onwards.

On valuation terms, Telco's stock is trading at a price to earnings multiple of 47x FY2000's earnings.

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