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Telco: Advantage size - Views on News from Equitymaster
 
 
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  • Sep 12, 2002

    Telco: Advantage size

    It has been an eventful first five months of the current fiscal year for commercial vehicle (CV) manufacturers. After remaining sluggish more almost three years, volume growth in recent months clearly suggests that the worst is behind them. But slower economic growth projections in FY03 could cap demand towards the second half of the current financial year.

    Consider the reason for the spurt in CV sales first. One of the key growth drivers of CV demand in FY03 is the sharp spurt in agricultural output in FY02 (7% rise in absolute terms). Industrial sector that has been languishing over the last three years has also exhibited growth in the first five months of the current fiscal year (average of around 2.2% rise in industrial output). With more tonnage to carry in the current fiscal, the rise in demand for CVs is not surprising. Strengthening of freight rates in key trunk routes has also been another key factor, as transport operators would ideally like to capitalise on any such opportunity.

    CVs - Robustness in volumes…
    (Nos) Apr-Aug'01 Apr-Aug'02 (% change)
    M/HCV 18,799 25,871 37.6%
    LCV 10,576 12,926 22.2%
    UV 10,231 9,701 -5.2%
    Cars 22,271 28,488 27.9%
    Total 61,877 76,986 24.4%

    Apart from these, there are some structural factors as well. With road construction projects connecting the four metros in full swing, it is cost efficient to operate bigger tonnage vehicles for operators. It was estimated that close to 42% of CV demand in FY02 was led by demand for multi-axle vehicles with tonnage in excess of 16 tonnes. This could have continued in FY03 as well. Affordable interest rates and increased focus by CV manufacturers to boost volume sales by entering into hire purchase contracts with transport operators also helped in a way.

    Monthly performance…
    (% YoY change) Apr-02 May-02 Jun-02 Jul-02 Aug-02
    M/HCV 28.0% 101.4% 35.5% 16.6% 30.3%
    LCV 52.0% 30.0% 8.0% 39.4% 3.3%
    UV -4.0% -13.1% 0.3% -2.2% -4.4%
    Cars -42.2% -33.6% 50.4% 103.7% 46.1%
    Total 2.7% 10.3% 29.8% 47.3% 25.8%

    Telco, being the dominant player in the CV segment, has benefited in a large way due to a combination of all these factors in the current year. Average monthly sales for Telco in the first five months of FY03 stand at 5,170 units as against 3,760 units in FY02. One has also got to keep in mind that HCV sales also include passenger vehicle sales (buses), which has also increased noticeably in light of higher demand for CNG vehicles and fresh orders from state transport undertakings. But the surprise was from the revival in LCV sales. LCVs have been losing sheen over the years due to tonnage polarisation and competition from three wheeler carriages. Overall CV sales is up 32% YoY to 38,797 units for April-August 2002.

    Telco's market share in utility vehicle (UV) segment has been on the decline due to stiff competition from Toyota and M&M. With superior product quality, both the players have given Telco a run for its money. Despite relaunches of its UVs, one is not optimistic on the same in the future. Indica's sales, on the other hand, continue to remain robust with volumes increasing by 28% to 28,488 units for April-August 2002. The company is set to launch the Sedan version of Indica, 'Indigo', is October 2002. This should enable the company to achieve volume growth of around 75,000-80,000 units in FY03.

    As far as future growth drivers are concerned, the company has launched ‘EX’ variants in its CVs with tonnage varying from 7-35 tonne. Telco's CVs have always been vulnerable owing to the competition's superior technology. But this could change with the introduction of the new range. Overall, with its well-spread distribution network, Telco is well-poised to capitalise on any further upturn in industry volumes in the future.

     

     

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