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Telco: Revival signs

Nov 1, 2001

Tata Engineering and Locomotives Company's (Telco) net loss has more than halved YoY in the second quarter ended September 30, 2001. The recent uptrend in medium and heavy commercial vehicle (M/HCVs) sales, the successful launch of the rechristened Indica (Indica V2) and the value engineering initiatives taken by the company has enabled it to reduce losses in the aforesaid quarter.

(Rs m)2QFY012QFY02Change
Sales 18,996 20,545 8.2%
Other Income 259 137 -47.1%
Expenditure 17,980 19,094 6.2%
Operating Profit (EBDIT) 717 1,202 67.5%
Operating Profit Margin (%)3.8%5.8% 
Interest 1,178 1,013 -14.0%
Depreciation 859 852 -0.8%
Profit before Tax (1,060) (526) 
Extraordinary item (522) (93) 
Tax - -  
Profit after Tax/(Loss) (1,582) (618) 
Net profit margin (%)-8.3%-3.0% 
No. of Shares (eoy) (m) 255.9 255.9  
Earnings per share (Rs) (24.7) (9.7) 

Passenger car and utility vehicle (UVs) sales have gone up by 13.7% to 20,447 units for 2QFY02. But the encouraging aspect is the rise in M/HCV sales, which has gone up to 18,882 units, a growth of 7.4%. Consequently, the company has managed to increase its market share to 65% in 2QFY02 as compared with 63% last year in the CV segment.

But LCV and UVs have declined significantly for the first half resulting in a 6% fall in overall volumes. While the performance of the company on the domestic front is encouraging, exports have plummeted by 43% in 2QFY02. Considering the sluggishness in industrial production for the first half and a not-so-encouraging khariff output, we expect the company to report around 7% fall in overall CV sales and a 8% rise in passenger car volumes in the current financial year.

Volume break-up…
CVs 17,584 18,882 7.4%
Cars & Uvs 17,980 20,447 13.7%
Exports 4,697 2,701 -42.5%
Total 40,261 42,030 4.4%
Telco had plans to prune the vendor list to 200 from 700 currently, in order to cut direct material costs that account for 75% of the company’s operating expenses. This along with the rationalisation in manpower by 3,800 employees last year has improved margins in the current quarter.

The company has restructured and repaid debts to the tune of Rs 193 m in 1HFY02. This has lowered interest expenses by 4.5% YoY in 2QFY02. As per the restructuring plan, Telco plans to retire debt worth Rs 5.2 bn in the next three years, out of which around Rs 2 bn will be retired in the current year itself. The company is expected to report a net loss of Rs 2,720 m for FY02 as compared with Rs 5,003 m in FY01. Given the fact that the company is the market leader in the CV segment, any upturn in CV demand will benefit Telco. This along with the second quarter performance are likely to result in a re-rating on the bourses.

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