The current financial year is a tough one for Tata Engineering & Locomotive Company Ltd (Telco). The medium and heavy commercial vehicle (M & HCV) segment, which had picked up in FY2000, is again facing a slowdown.
The M & HCV segments have performed badly in the current year. This can be attributed to many reasons like the sales tax rationalisation issue and past inventory buildup. In the hope that the scenario would look better in the 2H of the year as activity is expected to pick up during the festive season, M & HCV sales should improve. However keeping in mind the impending hike in diesel prices, this would act as a dampener to sales.
M & HCV
In the car segment too the company is now facing a slowdown. Though cumulatively till August car sales have reported a growth, for the month of August Indica sales have fallen by 25% YoY. This sure is a worrying sign. The company is unlikely to reach its breakeven target of 90,000 vehicles in the current year. Hence the costs associated with this division will continue to be a burden on the company’s bottomline in the current year, as the process of amortisation of expenses on the car project have started since September'99.
M & HCV
The only positive at this stage for the company seems the tie-up for the car project, which is likely to happen in the current year itself. It is on the look out for a strategic partner. As competition is already intense in the car market and the company would need to come out with a variety of cars in future, this move makes good business sense. Also keeping in mind the consolidation in the international car market, sooner or later they would have to enter into some tie-up.
In the utility vehicles (UV) segment the company has done reasonably well due to introduction of its new Sumo variants.
On the current price of Rs 83 (near to its 52 week low), Telco is trading at 29.8x FY2000 earnings.
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