Not Keeping Pace

Between April and August 1996, according to Association of Indian Automobile Manufacturers (AIAM) figures, the LCV market grew by 18 per cent in volume terms which is much lower than the runaway 48 per cent growth seen last year. In the same period, Ashok Leyland rose by 20 per cent and Telco a rise of 33 per cent. But Bajaj Tempo registered a fall of 5 per cent.

In this lean period, the drop of 5 per cent in sales of Bajaj Tempo is not an encouraging sign. Operating at near full capacity, BTL's growth in income will be limited in the near future. It sold about 28,000 vehicles in 1995-96 against 24,000 and 23,000 in the two preceding years.

 

According to Prashant Reddy, I-Sec Research, in the first half of 1996-96, Matador sales are down by 30 per cent over the corresponding period in the previous year, while in case of utility vehicles, namely Trax and Challenger, sales are up 26 per cent.

Overall volumes are down 3 per cent while the turnover is up by only 4 per cent. Thus, the growth in the last two years is not very significant. Its installed capacity is 30,000 vehicles.

Since the existing capacity is insufficient to fuel future growth, it is doubling its capacity to 60,000 vehicles. This is likely to go on stream by the last quarter of fiscal 1997. But, this may be affected as the company is facing labour problems due to the process of rationalisation.

The plant and machinery capitalised this year was Rs 67 crore and the depreciation nearly doubled to Rs 43 crore. The company is charging depreciation on plant and machinery at the rate of 33.33 per cent. With further additions in the near future, depreciation will further affect earnings.

BTL has launched the 3- wheeler Minidor this year, but this will not be significant to the turnover. The OX 45 tractor is the major item on the agenda which is being developed and the first fully tool made tractor will roll out within 3 years of the start of the project. It is setting up a capacity of 15,000 tractors.

A Rs 29.67 crore rights issue in the ratio of one share for every three held will be made shortly. The issue will be at a premium of Rs 90 and the equity base will go up by Rs 3.29 crore from the present Rs 9.88 crore.

According to Reddy, the first half earnings are likely to be 60 per cent lower YOY at Rs 7.3 crore. In 1995-96, it did a sales turnover of Rs 684.51 crore and achieved a net profit of Rs 26.35 crore.

Given the prospects, it seems a good idea to divest your holdings in the scrip at the moment. In the long term, when the expanded and new capacities are commissioned and absorbed by the market, the scrip would be worth a second look.