Tata Engineering and Locomotive Company Ltd. (Telco) has taken stern measures to recover the huge outstandings, amounting to over Rs 1 bn, from certain dealers. The company has stopped supplying trucks to these dealers and has also threatened them with the cancellation of their licences to distribute Telco vehicles in case they fail to pay up. The defaulting dealers include Autoriders Commercial Automobiles, Praman Motors and Rohit Automobiles.
Telco is India's largest heavy commercial vehicles (HCV) (65% market share) and light commercial vehicles (LCV) (69% market share) manufacturer. It also manufactures utility vehicles (28% market share) and passenger cars.
The build up of the outstandings is mainly an outcome of the recessionary conditions prevailing in the Indian economy (since October 1996), which led to a sharp slump in commercial vehicle sales. The dealers had offered large discounts to wipe out the inventory thrust onto them by the company, as a result of which they had suffered losses.
This action of the company comes at a time when commercial vehicle sales have been picking up. A backlash from the dealers could seriously hamper the company's recovery and also result in further loss of market share to Ashok Leyland. On the other hand, given the company's credibility in the market, it could possibly make alternate arrangements with other dealers at a short notice. The Rs 1 bn in outstanding, no doubt a large amount, can be borne by Telco given that it had forced vehicle sales onto the dealers. This would only help the company mend its relationship with troubled dealers. This would augur well for the company in the future.
As many lead indicators are signaling an economic recovery, analysts are increasingly putting up 'BUY' recommendations for the scrip. The increase in diesel consumption and freight rates has encouraged analysts to turn positive on the stock.
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