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Telco: Fortunes status quo

Jul 18, 2001

Tata Engineering (Telco), has been facing a tough period over the past year. The declining commercial vehicle (CV) volumes coupled with costs associated with its car project has resulted in a huge loss of Rs 5 bn for the year ended March 2001. On an encouraging note, the company's commercial vehicle volumes have reported a year on year improvement for the month of June 2001. Though this is only marginally better, atleast its not a decline. It is difficult to say at this stage that demand for CVs is improving for both the truck and bus segments as during April and May 2001 the company continued to face a drop in volumes. As the break up between both segments is not available currently, it is likely that some growth has come in from the bus segment. Telco has received an order for 4,590 CNG buses to be supplied to the National Capital Region (NCR) in the current financial year.

In a bid to increase volumes in its trucks segment the company is planning to launch new models catering specifically to client needs. Telco continues to complement its 697 engines vehicles along with Cummins engines during the year, and also concentrate on the fast growing CNG bus segment.

Domestic volumes Jun-00 Jun-01 % change Exports Jun-00 Jun-01 % change
  (nos.) (nos.)     (nos.) (nos.)  
M & HCVs 3,850 3,882 0.8% M & HCVs 218 115 -47.2%
Light CVs 2,700 2,160 -20.0% Light CVs 479 500 4.4%
Utility vehicles 2,204 2,019 -8.4% Utility vehicles 276 146 -47.1%
Cars 4,096 4,772 16.5% Cars - 65 -
Total volumes 12,850 12,833 -0.1% Total volumes 973 826 -15.1%

The company's car division did well in June 2001 and has reported a growth of 16.5% YoY. However this could be attributed to the fact that it had a backlog of orders in April and May 2001 due to supplier constraints from some vendors and the company has thus fulfilled these. As the company has hiked the price of its Indica car by 1.5% to 3.5% for its various models in June 2001, the trends emerging in the months ahead will be interesting to watch given the fact that the small passenger car market is facing difficult times.

Telco's performance in the light commercial vehicles (LCVs) and utility vehicles (UV) segment has been dismal for 1QFY02 in line with industry trends.

Domestic volumes April-June 2000 April-June 2001 % change Exports April-June 2000 April-June 2001 % change
  (nos.) (nos.)     (nos.) (nos.)  
M & HCVs 11,327 9,964 -12.0% M & HCVs 441 242 -45.1%
Light CVs 7,008 4,671 -33.3% Light CVs 1,626 1,154 -29.0%
Utility vehicles 6,158 5,753 -6.6% Utility vehicles 933 487 -47.8%
Cars 14,450 12,803 -11.4% Cars 50 67 34.0%
Total volumes 38,943 33,191 -14.8% Total volumes 3,050 1,950 -36.1%

On the exports front too the company has not performed well in 1QFY02. Considering that this is going to be one of the company's thrust areas in future as its aims to increase exports from 8% of turnover in FY01 to 20% in the next five years, the company's products do not seem to be doing well in the export markets.

On the costs side the company is aiming to reduce operating costs by Rs 2 bn in FY02 in a bid to improve its margins and overall efficiencies. However, unless there is an improvement in its volumes in 2HFY02, the company's fortunes are unlikely to be better from current levels. As monsoons are expected to be normal, agricultural growth is likely to pick up in the current year.

On the current price of Rs 70, Telco is trading at 24.4xFY00 EPS of Rs 2.8. We are forecasting a net loss of Rs 3,058 m for FY02E.


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