• JANUARY 25, 2000

Indica accelerates TELCO's losses

Automobile major Tata Engineering & Locomotive Company (TELCO) has posted a loss of Rs 603.4 m in 3QFY2000. However, sales turnover was a big consolation for the company as it posted a 52% leap to Rs 23.9 bn.

TELCO is India's largest medium/heavy commercial vehicles (M/HCV) (65% market share in September 1999) and light commercial vehicles (LCV) (63% market share) manufacturer. It also manufactures utility vehicles (28% market share) and passenger cars (7% market share).

TELCO's finance costs declined 8.4% to Rs 993.8 m, however depreciation climbed 43.6% to Rs 985.2 m.

(Rs m) 4QFY2000 4QFY1999 Change
Net Sales 23,901.7 15,717.4 52.1%
Other Income 50.0 217.4 -77.0%
Expenditure 22,576.3 14,379.5 57.0%
Interest 993.8 1,085.2 -8.4%
Depreciation 985.2 685.9 43.6%
Profit before Tax (603.6) (215.8) 179.7%
Tax - -  
Profit after Tax/(Loss) (603.6) (215.8) 179.7%
Net profit margin (%) -2.5% -1.4%  

Indica continues to eat into the company's margins. Strong CV sales contributed to the 52% jump in TELCO's turnover, but could not offset the decline in profitability. The company failed to absorb the full commissioning costs of the Indica, and so long as it struggles to do that, profitability seems distant. However, the Indica is operating at full capacity and has even bagged some export orders for Malta, being the first private sector car manufacturer to bag an export for a European location.

TELCO is looking to break-even by the end of FY2000, but given the competitive scenario in the passenger car segment (especially the small cars) this may seem a little too optimistic.

Robust CV demand will continue to boost the company's topline (sales). December 1999 witnessed 79.7% appreciation in TELCO's M/HCV sales. As cement, steel demand continue to firm up, M/HCV sales will clock above-average growth. However, TELCO will witness a decline in margins from the M/HCV business after installing the new Cummins engines in its models, which have added to the cost.

Market view:
Analysts have flagged a 'LONG TERM BUY' on the company due to its disappointing 3QFY2000 results. Analysts are bullish on the company's improved CV performance and strong Indica sales and feel that things can only get better for the company from here on.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407