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Telco: 1QFY04 revenues up 43%

Jul 21, 2003

Tata Engineering (Telco) has posted yet another impressive quarterly result. Led by a sharp rise in commercial vehicle and passenger car sales, the company has posted a 43% rise in net sales and a significant growth in net profit for FY04.

(Rs m) 1QFY03 1QFY04 Change
Net sales 17,477 25,009 43.1%
Other Income 69 105 51.2%
Expenditure 15,463 21,808 41.0%
Operating Profit (EBDIT) 2,014 3,201 59.0%
Operating Profit Margin (%) 11.5% 12.8%  
Interest 800 538 -32.8%
Depreciation 895 930 3.9%
Profit before Tax 388 1,838 373.5%
Extraordinary items - (202) -
Tax 108 634 485.6%
Profit after Tax/(Loss) 280 1,003 258.3%
Net profit margin (%) 1.6% 4.0%  
No. of Shares (m) 319.8 319.8  
Diluted Earnings per share (Rs)* 3.5 12.5  
P/E Ratio (x)   17.4  
(* annualised)      

Overall CV volumes have increased by 25% to 28,235 units in 1QFY04, primarily led by a 19% rise in medium and heavy CV sales (both domestic and export sales volumes). CV sales continue to remain strong on the back of positive growth in the industrial sector in 1HCY04 and demand arising out of replacement of old trucks. Though freight rates during the last quarter were relatively weak compared to 4QFY03, it is seasonal in nature.

Telco, in its annual report, had stated that it expects industry CV sales to grow by 7%-8% in FY04. Passenger car sales have more than doubled in 1QFY04. But it has to be remembered that Telco had a planned shut down in its car plant in the same period last year due to which volume growth in 1QFY03 was subdued. As a result, car sales is on the higher side in 1QFY04. As far as the geographical mix of volumes is concerned, exports have risen by 98% as compared to a 45% growth in domestic volumes.

First quarter snapshot…
(Nos) 1QFY03 1QFY04 Change
M/HCVs 15,254 18,106 18.7%
LCVs 7,337 10,129 38.1%
UVs 6,744 7,003 3.8%
Cars 11,429 25,154 120.1%
Total 40,764 60,392 48.2%
Source: Company website

The rise in operating margins have to be viewed in the context of benefits arising out of higher capacity utilisation. This is in line with our full year operating margin estimate of 12.8%. Other income has shown a sharp spurt as it includes Rs 103 m towards trade investment sold in the year 1999-2000 that are recognised in 1QFY04. Telco had indicated that it would repay debt to the tune of Rs 5 bn in FY04 and accordingly, interest cost is lower in the first quarter of this fiscal. Extraordinary adjustments here pertain to the write-off of cost under Employee Separation Scheme to the tune of Rs 199 m, which has resulted in lower profits for 1QFY04.

The stock currently trades at Rs 218 implying a P/E multiple of 17.4x annualised 1QFY04 earnings (11.8x FY04E earnings). FY04 has a lot to offer to the company. CMIE's expectations of a sharp rise in food grain output and GDP growth could translate into higher CV demand for goods transportation (the relaxation in inter-state transportation of food grain, in this context, bodes well for the sector as a whole). With exports to Rover also expected to gain momentum in the second half, passenger car sales for Telco is expected to look up. Though valuations are on the higher side for the CV company at the current juncture, looking at the long term, Telco seems to be well placed to capitalise on any rise in CV demand. That said, the passenger car division continues to remain an area of concern and therefore, increases the risk profile of the stock.

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