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Telco expects first-half sales to be flat

India's largest truck and bus maker, Telco Ltd, which reported a Rs 5.0 billion annual loss on Thursday, said it expected flat sales for the first half of 2001-02.

"An upturn (in sales) in the second half would depend on a good monsoon but we expect sales to be flat in the first half," Praveen Kadle, senior vice-president finance at Tata Engineering and Locomotive Co Ltd said on Friday.

Analysts said Telco's plunge into the red was bigger than expected and have forecast Telco will not return to profit until 2002-03 when they expect the vehicle maker to be helped by a cyclical upturn in sales.

Telco's commercial vehicle sales fell 19.8 per cent in 2000-01 (April-March) to 82,718 units while utility vehicle and car sales fell 13.2 per cent to 71,880 units. India's overall commercial vehicle sales fell 12.3 per cent in the last year to March owing to poor agriculture growth and slowing industrial production.

Analysts have said a good monsoon offers the only possible upside for sales as it would boost transport of agricultural produce and increase rural demand for industrial products.

Telco, which also makes light trucks, cars and utility vehicles, posted a net profit of Rs 712 million in 1999-00 (April-March) helped by one-time income from the sale of some of its divisions.

It said losses in 2000-01 reflected higher costs to meet more stringent emission norms and declining volumes. Its net sales dropped 7.9 per cent to Rs 80.96 billion.

Kadle said the company made significant provisions in the fourth quarter that widened losses. "We decided to write off some of our slow moving receivables (payments for goods sold), had to revise salaries and had higher marketing expenses".

OPERATING MARGINS FALL

Telco did not explicitly report fourth-quarter results. But a comparison with previous quarters showed operating profit margins slid to 0.52 per cent in the fourth quarter from 4.96 in the third, 7.47 in the second and 7.3 in the first.

Richard D'Souza, an analyst with brokerage Sunidhi Consultancy said Telco's poorer fourth-quarter loss was due to an inability to pass on the higher costs of the new version of the Indica to the customers due to competitive market conditions.

Telco launched an improved version of the Indica hatchback, the country's first indigenously developed car, earlier this year that promised a smoother suspension and improved steering but barely increased prices.

The company, which spent nearly Rs 17 billion on developing the car, wrote off Rs 1.37 billion of those expenses in 2000-01. Kadle said the company still had to write off nearly Rs 2.0 billion in development costs.

Kadle said Telco would battle to cut costs further to improve its bottomline and was aiming to save nearly 2.25 billion in 2001-02.

He said the company had saved Rs 2.55 billion in the previous year through better quality practices and manpower cuts and shaved Rs 410 million from interest costs through tighter control of working capital.

Telco is also looking for foreign partners for its gearbox and axle divisions which it spun off into separate companies last year and would offer stakes to them.

Kadle said the company was close to signing a deal for the tie-ups and expected to complete the transactions this year.

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