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Telco 2QFY01: A bad performance

Oct 20, 2000

Tata Engineering Ltd (Telco), has reported a net loss of Rs 1,463m for the 2QFY01, a drop of 531% YoY. This is much worse that the 1QFY01 loss of Rs 743 m. The company's sales declined by 8% YoY to Rs 19 bn, mainly because of a slowdown in commercial vehicles segment and passenger cars during this quarter. Its operating margins fell to 6.2% YoY in the 2QFY01 as compared to 7.3% in the 2QFY00. This was mainly due to higher costs associated with emission compliance, higher raw material costs and high cost related to installation of Cummins engines.

(Rs m) 2QFY00 2QFY01 Change
Sales 20,700 19,006 -8.2%
Other Income 959 259 -73.0%
Expenditure 19,185 17,826 -7.1%
Operating Profit (EBDIT) 1,516 1,180 -22.1%
Operating Profit Margin (%) 7.3% 6.2%
Interest 1,069 1,063 -0.5%
Depreciation 1,067 1,317 23.5%
Profit before Tax 340 (940) -377.0%
Other Adjustments - -523  
Tax 0 0 -
Profit after Tax/(Loss) 340 (1,463) -531.0%
Net profit margin (%) 1.6% -7.7%  
Diluted No. of shares (m) 255.9 255.9  
Diluted Earnings per share* 5.3 -  

The depreciation and amortisation costs went up by 24% YoY to Rs 1,317 m on account of the Indica plant being ramped up to 100% capacity. The profit before tax and adjustments was Rs 940 m for the 2QFY01, a drop of 377% YoY.

However the net profit fell further due to extraordinary expenses relating to employee separation scheme (Rs 34 m) and provision for power costs (Rs 489 m) relating to previous years.

The main reason for the rise in losses of Telco in the 2QFY01 are a slowdown in commercial vehicle and passenger car volumes. In the 2QFY01, medium and heavy commercial vehicle (M/HCVs) declined by 30% YoY. This is worse than the performance of the 1QFY01. To add to this its Indica volumes too slowed down and fell by 23% in the 2QFY02, as compared to a growth of 85% YoY in the 1QFY01.

  1QFY01 1QFY00 1QFY01/1QFY00
% change
2QFY01 2QFY00 2QFY01/2QFY00
% change
M & HCV 11,327 12,349 -8% 12,148 17,338 -30%
LCV 7,008 7,817 -10% 11,313 8,355 35%
Utility 6,158 5,409 14% 9,077 9,247 -2%
CV and utility sales 24,493 25,575 -4% 32,538 34,940 -7%
Cars 14,450 7,820 85% 10,739 13,954 -23%
Total sales 38,943 33,395 17% 43,277 48,894 -11%

The Indica project has achieved a cash break even in the 1HFY01, however the operating break even is yet far away. 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. This too looks unachievable considering that in the 1HFY01 the company has sold only 25,189 cars.

No signs of any improvement
Category 1HFY01 1HFY00 % change
M & HCVs 23,475 29,687 -21%
LCVs 18,321 16,172 13%
Utility 15,235 14,656 4%
Cars 25,189 21,774 16%
Total 82,220 82,289 0%

The 2HFY01 too is expected to be tough for Telco due to a slowdown across its major segments, uniform sales tax, escalating oil prices and costs associated with the Indica project. We do not foresee any improvement in the 2H.

On the current price of Rs 72, Telco is trading at 25.7x FY2000 EPS of Rs 2.8. It is trading close to its 52 week low. We expect the stock to decline by atleast 10%-15% on the back of these dismal results.

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