Telco 1QFY02: Margins improve - Views on News from Equitymaster

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Telco 1QFY02: Margins improve

Jul 24, 2001

Tata Engineering (Telco) has reported a loss in the first quarter of the current financial year. The company continues to hit by the economic slowdown. Sales for 1QFY02 have dropped by 5.6% to Rs 16,974 m. Sales of CVs, UVs and exports have declined by 21.9%, 10.0% and 24.5% respectively during the first quarter. However, there is something to cheer about. The loss reported by the company at Rs 989 m is lower than market expectations.

(Rs m) 1QFY01 1QFY02 Change
Sales 17,977 16,974 -5.6%
Other Income 285 67 -76.6%
Expenditure 16,715 15,711 -6.0%
Operating Profit (EBDIT) 1,262 1,263 0.1%
Operating Profit Margin (%) 7.0% 7.4%  
Interest 1,062 1,021 -3.9%
Depreciation 882 895 1.4%
Profit before Tax (398) (586) 47.4%
Extraordinary item (346) (403) 16.5%
Tax - -  
Profit after Tax/(Loss) (743) (989) 33.0%
Net profit margin (%) -4.1% -5.8%  
No. of Shares (eoy) (m) 255.9 255.9  
Diluted number of shares 255.9 255.9  
Earnings per share (Rs) (11.6) (15.5)  

The market for commercial vehicles continues to remain subdued in light of the slow down in industrial production and lacklustre rural demand. Overall industry volumes have fallen by 14% in the first quarter and the medium-heavy commercial vehicle sales continue to remain depressed. The scenario is not different for passenger car and utility vehicles also. A 24.5% fall in exports to 2,326 units is a cause of concern because Telco's management had identified exports to be one of the key drivers of growth for the company in coming years.

The slow down effect...
Sales (nos) 1QFY01 1QFY02 Change
CVs 18,357 14,335 -21.9%
UVs & Cars 20,588 18,537 -10.0%
Exports 3,079 2,326 -24.5%
Total 42,024 35,198 -16.2%

The slow down in sales has forced Telco to cut back production. Aggregate production in the first quarter has fallen by 21.8% to 35,834 units. Production of CVs and UVs (including cars) have dropped by 21.3% and 22.2% respectively.

On the positive side, Telco has managed to cut costs by 6.0% and as a result, margins have gone up by 40 basis points to 7.4% in 1QFY02. The company has also lived up to its promise of realigning debt and efficiently utilising working capital, which has been a drag on the company's profitability. Interest cost has come down by 3.9% to Rs 1,021 m in 1QFY02.

Extraodinary item include Rs 323 m towards deferred revenue expenditure and Rs 80 m towards employee separation costs. Net loss in 1QFY02 stands at Rs 989 m as compared to Rs 743 in the correponding quarter of the previous year.

The stock has reacted positively to the annoucement of the results. At close, Telco was up over 10% at Rs 78.

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