Tata Motors: Smart truck

Thailand beach-head will allow Tata Motors to hone its technology and marketing skills.

The move by Tata Motors to set up a beach-head in Thailand to assemble and market pick-up trucks is a good one and not just because Thailand is a big market.

It will be a good learning exercise for the company since it will be a player not just in the second-largest pick-up trucks market in the world, but also one of the most competitive.

With the likes of Isuzu, Mitsubishi, Ford, Toyota and others all competing for a share, it will be an opportunity for Tata Motors to hone its technological and marketing skills.

So while, the joint venture with the local Thonburi Automotive""which brings to the table a manufacturing facility and knowledge of the market""may not yield any immediate results ""it is nonetheless a good idea.

The target to sell 30,000 vehicles in three years, after the vehicles rolls off the assembly line, is not too ambitious.

The total market for pick-ups in Thailand in CY05 was 420,000 units and 70 per cent of this was shared by Toyota and Isuzu.

The management says that it will be developing a new one-tonne vehicle incorporating some new features suited for the Thailand market. By increasing its focus on exports, Tata Motors is de-risking the business model.

For instance, the decline in unit volumes from the anticipated turn in the domestic medium and heavy commercial vehicle goods cycle is expected to be partially offset by rising exports.

Exports are expected to grow at around 12.4 per cent between 2006 and 2009 and should touch 11 per cent of overall volumes by FY09, led by Ace ""its sub-one-tonne truck""and variants. Total export volumes in FY06 were at 50,509 and are expected to go up to nearly 72,000 in FY09.

ABG Shipyard: Order boost

ABG Shipyard has bagged a repeat order worth nearly Rs 100 crore from Netherlands-based Vroon Offshore for building a diving support vessel. Prior to this order, ABG Shipyard was already building two vessels for the Dutch company.

Analysts at domestic brokerage houses point out that with major shipyards in Korea and Western Europe already booked till CY09, it has led to global shipping and equipment suppliers to the upstream oil industry increasingly looking at alternative sources, like Indian shipyards.

Also, the growing sophistication of Indian shipyards has helped improve order inflows, with ABG Shipyard's aggregate current order book in hand amounting to Rs 2,400 crore.

The latest order helped the stock rise 2.6 per cent to Rs 230 on Monday. Meanwhile, ABG Shipyard's operating profit grew by 58.4 per cent y-o-y to Rs 48.35 crore in the September 2006 quarter compared with 48 per cent growth in net sales to Rs 167.9 crore.

Analysts point out that despite rising input costs of metals, the company grew largely owing to the completion of expansion of its existing facilities in Surat, coupled with the execution of higher value orders.

For instance, in the last quarter, the company delivered an anchor handling tug/supply vessel to an Egyptian company.

As a result, operating profit margin also expanded by 200 basis points y-o-y to 28.8 per cent in the last quarter. Going forward, ABG Shipyard is expected to complete the expansion of its Dahej shipbuilding capacity by April 2008. The stock appears reasonably valued at 10 times estimated FY 07 earnings, given the growth potential in this sector.

Yokogawa India: Exit gains

Yokogawa India's Japanese parent is planning to get its subsidiary delisted by buying 16.8 per cent non-promoter's stake.

The weighted average price for the Yokogawa stock prior to this announcement was Rs 320, while the parent is prepared to buy the shares up to a maximum of Rs 380.

The stock jumped 8.6 per cent to Rs 413 on Monday as investors speculated that the maximum price at which the parent will buy the shares could be raised, if the response was not satisfactory.

The acquisition price for Yokogawa India of Rs 380, is at 20 times estimated FY07 earnings. Yokogawa India focuses on industrial automation and control, test and measurement, information systems.

Other players in automation and allied segments such as ABB India trade at 45 times estimated CY06 earnings, while for Siemens India it is 50 times November 2006 earnings.

Meanwhile, in the first half of FY07, Yokogawa India had seen its operating profit expand by 32.2 per cent y-o-y to Rs 12.3 crore compared with 38 per cent growth in net sales to Rs 149.3 crore.

Operating profit margin declined by 40 basis points y-o-y to 8.2 per cent in H1 FY07.

With the domestic and other Asian economies expected to remain on a growth trajectory in the medium term, it should help to drive growth at Yokogawa India.

It does appear that domestic shareholders would be better off exiting in the market, rather than selling to Yokogawa.

With contributions from Shobhana Subramanian and Amriteshwar Mathur