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Telco’s car volumes under pressure in July

Aug 14, 2000

Tata Engineering and Locomotive Company Ltd (TELCO)'s domestic commercial vehicles (CV) volumes for the month of July’2000 at 7,733 vehicles have reported a decline of 9.7% YoY. The company’s passenger car sales fell by 14.8% YoY to 3,550 vehicles, due to overall slowdown in the domestic passenger car segment. TELCO, is India's largest commercial vehicle manufacturer. It dominates the MCV/HCV segment with a market share of 66%, the LCV segment with a 67% market share, and utility segment with 26% market share. It reported a turnover of Rs 64 bn in FY99. Its plants are located at Pune, Jamshedpur and Lucknow.

Volumes on a month on month basis
  June'99 July'99 % change June'2000 July'2000 % change
M & HCV 5,676 4,049 -28.7% 3,850 3,474 -9.8%
LCV 2,974 2,417 -18.7% 2,700 2,030 -24.8%
Utility 2,100 2,095 -0.2% 2,204 2,229 1.1%
CV and utility sales 10,750 8,561 -20.4% 8,754 7,733 -11.7%
Cars 3,656 4,165 13.9% 4,096 3,550 -13.3%
Total sales 14,406 12,726 -11.7% 12,850 11,283 -12.2%

In the month of June’2000, Telco’s passenger cars volumes grew by 12% YoY, hence the decline in the month of July’2000 is a cause for concern. On a month on month basis in the previous year Telco’s car volumes grew by 14% in July’99 over June’99. However in the current year July’2000 over June’200, the volumes have declined by 13% YoY. If passenger car volumes do not pick up in coming months, the company’s car project may take longer to break even than expected earlier.

Total volumes YTD remain flat
April-July (YTD) volumes
% change
M & HCV 17,085 15,466 -9.5%
LCV 10,641 11,371 6.9%
Utility 8,784 9,680 10.2%
CV and utility volumes 36,510 36,517 0.0%
Cars 12,019 18,085 50.5%
Total volumes 48,529 54,602 12.5%

The company’s domestic M & HCV volumes continue to decline due to sales tax rationalisation, softening of freight rates and the ongoing monsoons. However due to better export volumes in light commercial vehicles the company’s overall CV volumes remained flat YoY for April–July’2000 YTD.

Domestic volumes on a decline
  July 1999
July 2000
% change
M & HCV 4,049 3,474 -14.2%
LCV 2,417 2,030 -16.0%
Utility 2,095 2,229 6.4%
CV and utility volumes 8,561 7,733 -9.7%
Cars 4,165 3,550 -14.8%
Total volumes 12,726 11,283 -11.3%

TELCO's is doing well in utility vehicles and its market share in this segment is expected to go up in the current year. The company had lost market share in FY2000, but has become aggressive on product launches. It has successfully launched the Sumo variants to counter the competition for different market niches.

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 as the company would have to continue to bear costs associated with Indica and Cummins engines. The slowdown in CV sales too will act as a dampener. The company is expected to show an improvement in margins and profitability FY2002 onwards.

On valuation terms, Telco's stock is trading at a price to earnings multiple of 32x FY2000's earnings.

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