• APRIL 18, 2000

TELCO reports robust sales growth for FY2000

As per newspaper reports, Tata Engineering and Locomotive Company Ltd (Telco) has reported a 55% growth in total vehicle sales for FY2000 to 1,99,115 vehicles from 1,28,867. The reason for this jump are a good growth in medium and heavy commercial vehicle sales of 36% YoY in FY2000 and car sales which grew to 55,753 as the car division was operational for the full year with the introduction of Indica in December'98.

Telco, is India's largest commercial vehicle manufacturer. It dominates the MCV/HCV segment with a market share of 66%, the LCV segment with a 67% market share, and utility segment with a 26% market share in FY99. It reported a turnover of Rs 64 bn in FY99. Its plants are located at Pune, Jamshedpur and Lucknow.

Of the total car sales of 55,753 reported for FY2000, Indica sales accounted for 99% of the car sales and reported a sales figure of 54,990 for this period.

Sales FY00 FY99 % growth
Medium and Heavy CVs 73,628 54,095 36%
Light CVs 37,751 38,712 -2%
Utility vehicles 31,983 31,327 2%
Total CVs 1,43,362 1,24,134 15%
Cars 55,753 4,733 1,078%
Total sales 1,99,115 1,28,867 55%

In the light commercial vehicles (LCVs) segment the company has not faired very well and sales of LCVs have showed a decline of 2% in FY2000 to 37,751 vehicles. The main reasons for this decline is higher competition in this segment. This was a result of lower priced products introduced by Bajaj Tempo and an aggressive marketing campaign by Eicher during the year which has resulted in a shift in consumer preferences in this segment. Telco's market share in this segment has fallen from 67% in FY99 to 60% in FY2000.

In the utility vehicles segment Telco has reported a growth of 2% YoY in FY2000 to 31,983 vehicles. Its two products in this segment the Sumo and the Safari have gained acceptance in the European and Latin American markets and exports of utility vehicles in FY2000 jumped up 292% to 4,294 vehicles as compared to 1,095 vehicles in FY99.

Telco's commercial vehicle sales has reported a growth of 15% YoY in FY2000. This can be attributed to the fact that economy and industrial production is showing signs of a pick up, lower interest rates has lead to better financing options available, stable freight rates, and a reduction in dealer inventories.

Telco has recently indicated its willingness to separate the car division into a separate business unit and let it operate as a separate profit centre. This will enable the company as well as investors to decipher its performance more clearly in the light of the fact that their commercial vehicles business has picked up in line with the economic scenario. As the car division has been a drag on the company's profits as it has yet to break even this separation could be beneficial to the company.

Though in FY2000 the Indica has performed well and has been well received by the market, in future competition in this segment would be important. The company will have to come out with newer models and newer products to keep up with the increasing competition in the car segment. This would entail huge designing, production and marketing costs. Though the improvement in the economy will result in higher sales of commercial vehicles for Telco the car division will be a drag on the company's bottomline.

Market View:
Analysts are positive on TELCO , however most of them have rated it as a "long term BUY", mainly because the car division is a drag on the company's profits.

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