• MARCH 14, 2000

Heavy vehicle sales limit Telco's growth

Tata Engineering has posted a YoY sales growth of 26% and 35% during February 2000 in light commercial vehicles and utility vehicles respectively. The heavy commercial vehicle segment grew by a modest 1.5% even as passenger car sales topped 5,392 numbers.

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 (UVs) (28% market share) and passenger cars (8% market share).

For the eleven months ended February 2000, the company’s cumulative sales growth stands at 57.8%. The main contributor to this has been the heavy vehicles segment, which has growth 44.5%. However, the LCV segment recorded a 6.9% decline in this period even as LCV sales stagnated at previous years’ levels.

The latest monthly results highlight that there has been a slowdown in the sales of heavy vehicles – both exports and domestic sales (up 3.7% YoY). However, the LCV and the UV segment seem to be picking up. The LCV segment has benefited from the trickle down effect after the surge recorded in the heavy vehicles segment. The growth in the UV segment seems to have responded to the new introductions during the year (largely in response to competition).

Indica sales continue to be robust and this should be a key-driving factor of overall growth, especially in view of the company's plans to rev up production to 10,000 cars per month shortly.

Although the monthly sales have grown by 56% (YoY) (due to base effect), there is a key concern that pertains to the slowdown in the sales of heavy vehicles – the bread and butter business of the company. However, as industrial activity picks up sales should look up.

Market view:
Given the strong CV demand, and robust Indica sales, analysts have recommended a 'LONG TERM BUY' on the stock. Concerns about the capitalisation of the Indica and its break-even still persist.

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