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Telco: downward slide continues

Nov 28, 2000

As per a recent newspaper article, Telco has indicated that its commercial vehicle (CV) segment will not report any turnover growth this fiscal. During the period April-October 2000, commercial vehicle sales declined by 25% YoY to 27,580 units. This confirms our view that Telco's CV sales continue to face trying times. The reasons for this fall are diesel price hikes and a slowdown in key sectors like agricultural, industry. Diesel is an important component for freight operators as it accounts for 55%-60% of the total operating cost of a vehicle. The uneven distribution of the monsoon and the recent diesel price hike has not improved matters in the 2HFY01. The agricultural sector has slowed down due to drought conditions and recent monsoons.

Another factor that has adversely affected Telco is implementation of uniform sales tax across the country. Some states that were earlier charged 4% sales tax, are now paying 12%, hence this has adversely affected the automobile industry by slowdown in volumes.

Segment April-Oct 2000 April-Oct 99 % change
M& HCV 27,580 36,723 -25.0%
LCV 21,311 19,176 11.0%
Utility 17,381 17,250 1.0%
Cars 27,707 26,567 4.0%
Total 93,979 99,716 -6.0%

The company is gearing up itself to meet future competition. It plans to launch new models ranging from 2 tonnes to 40 tonnes to widen its product offering base. This would be a positive for the company as and when the CV industry does pick up.

The company's 2QFY01, results were dismal due to a drop in margins and lower volume growth. As a result of the above factors we have recently downgraded our net profit forecast for FY01E. Telco: Tougher times ahead

The company is taking measures to increase its margins and has initiated a cost cutting exercise to this effect. Though the results of this as well its voluntary retirement scheme are yet to show results, atleast they are moving in the right direction.

Telco's stock has been attracting buying interest in the bourses in the last few trading sessions. The trigger to this has been the expectations of a tie-up for the company's car division with an international car major.

On the current price of Rs 88, Telco is trading at 31.4x FY00E EPS of Rs 2.8.

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