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.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (m)
Diluted Earnings per share (Rs)*
P/E Ratio (x)
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…
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.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407