Pravin Kadle, executive director, Tata Engineering, dispels concerns about a slowdown in commercial vehicle sales
Tata Engineering declared its third quarter results last week. Net profit was at Rs 131.2 crore compared to a loss of Rs 55.5 crore last year, while its topline grew by 24 per cent from Rs 1772.7 crore to Rs 2,193.2 crore. Operating margins increased to 13.1 per cent compared to 10 per cent in the same period last year. This came on the back of an emphasis on cost reduction and a rise in volumes of passenger vehicles like the Indica.
However, the Tata Engineering scrip did not witness any sharp movement as the numbers were largely in line with market expectations. The company is understood to have entered into a deal with Rover for the export of nearly one lakh cars over a span of five years. Company officials declined to give details of the deal.
Pravin Kadle, executive director, Tata Engineering, dispelled concerns about a slowdown in commercial vehicle sales at a recent press meet. Excerpts:
The margins of Tata Engineering have risen over the last year from 10 per cent to 13 per cent. Do you expect the margins to expand further?
The only way that we can sustain growth in EBITDA margins is through continuous cost reductions and through increasing revenues. We are looking to increase revenues both from the traditional revenue source as well as by increasing alternative sources of revenue. But there is a limit to how much we can increase revenues.
The highest EBITDA margin has been approximately 16 per cent and we have achieved 13 per cent in this quarter. But the task of achieving the 16 per cent still remains. However, the improvements will not be spectacular because we are already close to our historical high.
Do you plan to bring down interest costs further from the Rs 2000 crore levels? Are there any plans to become debt-free?
We expect the debt burden to reduce by a couple of hundred crore by March 2003. As far as becoming completely debt-free is concerned, it would lead to the loss of tax advantages on interest payments.
Therefore, we have no plans to become completely debt-free at any point in future. The target of debt-to-equity ratio that we are striving for is 0.5:1. At present, the ratio is approximately 0.76:1.
Commercial vehicles have posted a healthy growth in volumes this year. Do you expect a slowdown now?
Commercial vehicles have done well because of various factors like demand from housing and infrastructure sectors. These factors have led to an increase in demand for trucks. Besides, this year we have seen an increase in the movement of food grains from areas with surplus to areas with a deficit. The growth in cement transported by road too has averaged 10 per cent for the period April to December 2002.
We expect the number of trucks sold to grow by 25 per cent for the financial year 2003. The reason is that the fourth quarter of fiscal 2002 was very good in terms of sales volume growth. Therefore, it would be very difficult for us to beat the figures of the fourth quarter last year. Even then, a flat sales growth in the fourth quarter would mean that the company ends the year with a 25 per cent sales growth in the trucks segment. This is a conservative estimate and we should be able to show some growth in the last quarter of fiscal 2003.
Why hasn't the utility segment grown much? How much do you expect the Indigo sales to settle at?
The utility segment has grown by five per cent over the past year. This has to do with the target clientele of the segment. Utility vehicles can be divided into vehicles targeted towards passengers and those targeted towards commercial users. Now, utility vehicles meant for the commercial segment have not done very well, bringing down the growth in the utility vehicle segment. 'B' class segment cars have been received well by the people, with market share improving for Indica.
For Indigo, we had expected to sell 1,200 cars on a steady basis. The car has been received well by the public and the signs are that we shall exceed the target.
How about passenger cars?
Even there the growth has been subdued. The industry has grown very fast over the past year. Overall, the market has not grown by more than five per cent. Sure, the B segment has grown with a lot of people upgrading to this segment. Indica has done well within this segment because it offers the affordability of a B class vehicle along with the features of a premium class vehicle.
Do you expect to sustain the growth rate in the coming quarters?
We wish to point out that the fourth quarter last year was very good as compared to the rest of the year. Therefore, while we will continue to grow in absolute terms, percentage growth rate may be flat.
Moreover, the number of vehicles sold would depend on economic growth. The economy is showing signs of growing, but the signs are not strong enough for us to say that there will be growth for certain. Therefore, there is a lot of uncertainty.
What is the idea behind merging Tata Finance with Tata Engineering?
The plans between Tata Engineering and Tata Finance do not concern a merger as much as a collaboration. Tata Engineering has an internal finance team that takes care of vehicle financing. Under its restructuring plan, Tata Finance plans to restrict itself to the auto finance market and exit all other businesses. This would have led to two companies of the same group competing against each other in the same market.
Therefore, we have decided to hand over the marketing of vehicle financing to Tata Finance. This should lead to synergies between the companies and would eliminate competition between two group companies in the same market.
