Indica, CVs batter Telco's 1QFY01 net - Views on News from Equitymaster

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Indica, CVs batter Telco's 1QFY01 net

Jul 25, 2000

Tata Engineering and Locomotive Company Ltd (TELCO), has reported a net loss of Rs 743m for the 1QFY01, as compared to Rs 335 m net loss reported in the 1QFY00. The company's net sales have grown by 14% in 1QFY01 to Rs 18,029 m as compared to Rs 15,801 m reported in 1QFY00.

(Rs m)1QFY001QFY01Change
Sales 15,801 18,029 14.1%
Other Income 38 285 641.1%
Expenditure 14,720 16,977 15.3%
Operating Profit (EBDIT) 1,081 1,052 -2.7%
Operating Profit Margin (%)6.8%5.8% 
Interest 684 910 33.0%
Depreciation and amortisation 771 1,171 51.9%
Profit before Tax (335) (743)121.7%
Other Adjustments-- 
Tax - -  
Profit after Tax/(Loss) (335) (743)121.7%
Net profit margin (%)-2.1%-4.1% 
No. of Shares (eoy) (m) 255.9 255.9  
Diluted number of shares 255.9 255.9  
Diluted Earnings per share*-- 

The operating margins have declined from 6.8% in 1QFY00 to 5.8% in FY01 due to higher raw material consumption. The company's interests and depreciation costs went up by 33% YoY and 52% YoY respectively for the 1QFY01, due to higher production of its Indica cars. The 1QFY01 expenses includes the full impact of the capitalisation of the car project, this is a positive move by the company.

The main reason for the rise in losses of Telco in the 1QFY01 are a slowdown in commercial vehicle volumes. To add to this, the continuing high costs associated with the company's car division and higher costs attributed to installation of the Cummins engines has resulted in the loss. The car division is expected to break even at 90,000 units and the company expects this to happen by the end of FY2001.

Commercial vehicle sales in the current year have slowed down. For the 1QFY01 Telco's total commercial & utility vehicle sales fell by 4% YoY to 24,493 units. In comparison for the previous year in the 1QFY00, commercial vehicle volumes had grown by 8% YoY to 25,575 vehicles. This is the result of the adverse impact of imposition of uniform sales tax and softening of freight rates. Its car division continued to perform well and sales grew from 7,820 units in the 1QFY00 to 14,450 units in 1QFY01, a growth of 85% YoY.

 April-June (YTD) volumes
(% change)
M & HCV 12,349 11,327 -8.3%
LCV 7,817 7,008 -10.3%
Utility 5,409 6,158 13.8%
CV and utility sales 25,575 24,493 -4.2%
Cars 7,820 14,450 84.8%
Total sales 33,395 38,943 16.6%

The company has revised down its estimates for the Indica car division in the current year from a sales target of 90,000 vehicles to 70,000 vehicles. The company's ongoing restructuring exercise also aims to beef up its operating margins. To achieve this the company has decided to reduce its workforce by 7,000 employees in FY01. They aim to do this by offering a voluntary retirement scheme to 3,000 employees and the rest would be transferred to Telco's various subsidiaries.

The company’s car division continues to be a drag on profits. The company expects to break even on the Indica by the end of FY2001. FY2001 does not look very attractive with slower CV volumes and costs associated with the Indica project. As a result the company is expected to start showing improvement in their margins and profitability FY2002 onwards.

On valuation terms, Telco's stock is trading at a price to earnings multiple of 39x FY2000's earnings.

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