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| Commercial vehicle sales went into overdrive in the month of July, as the market leaders, Tata Motors and Ashok Leyland grew sales by almost 60 per cent.
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| While Ashok Leyland's CV sales grew 58 per cent to 3,269 units last month, Tata Motors' managed a 60 per cent growth to 11,386 units. This is much better than the growth rates the two companies had managed in the June quarter, when Ashok Leyland's sales had grown just 8.6 per cent, while Tata Motors' had grown 29 per cent.
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| Interestingly, Tata Motors had said earlier in the year that its commercial vehicle sales would grow 8-10 per cent this fiscal, which in unit terms works out to a growth of around 10,600 units.
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| In the first four months of the fiscal, the company has already sold 9,800 additional units, which means that the growth target was rather conservative. But as the company management points out, sales in the previous fiscal had grown around 30 per cent, thus representing a rather high base.
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| Domestic market sales rose 18.7 per cent at 12,179 vehicles in July 2003 over the corresponding period of the previous year. The company's cumulative sales for the April-July also increased 52 per cent over the corresponding period of the previous year.
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| The point really is that the way sales have grown so far this fiscal is much better than what companies had expected. From Tata Motors' point of view, the jump in volumes is resulting in extremely high growth rates in earnings, demonstrating a high operating and financial leverage.
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| This is evident from the company's Q1 results, where sales grew 43 per cent, but net profit grew almost 300 per cent. the scenario at Ashok Leyland was slightly different, since margins were pulled down by high raw material cost and because of lower defence and spares sales.
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| But simply going by the trend in volume growth, which is being driven by replacement demand and a pick-up in key industries, both companies look set to deliver a great performance this fiscal.
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| BHEL
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| Given the project based nature of BHEL's business, the net loss in the first quarter ended June 2003 is not unduly worrying. In fact, the company's performance has improved significantly compared to the corresponding period last year.
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| It has turned around with a profit of Rs 2.8 crore at the profits before deferred revenue expenditure and tax level. True, the improvement in the profitability was helped by a 64 per cent jump in other income component.
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| But the heartening fact is that BHEL had the highest ever order backlog of Rs 16400 crore at the end of the quarter, showing a 30 per cent growth compared to the order backlog at the end of the corresponding quarter.
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| Also, the order bookings (order inflows) during the quarter at Rs 1687 crore was higher by 64 per cent. Interestingly, almost the entire order booking was from industrial clients and not from the power sector, which is witnessing increasing capital expenditure.
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| To BHEL's credit, the order bookings from industry include a highest ever order from IOC for Rs 772 crore and an order from Hindustan Zinc for Rs 391 crore.
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| With the highest ever order backlog, the next couple of years appear to be ones of sustained high revenue growth with an improvement in profitability over the latter part of the year.
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| BHEL has commenced a VRS program, expected to get completed by August. There has been a change in accounting norms, according to which if an expenditure for the benefit of a company does not result in the creation of an intangible asset, it will have to be written off completely in the year of expenditure.
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| The management is of the view, however, that the accounting standard does not relate to VRS and as a result, the expense will be written off over the next three years.
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| Secondly, the audit of its FY03 results has led to an additional tax provision for prior periods. The Income Tax department has disallowed exchange losses on an accrual basis as tax deductible, contending that the exchange losses are recognisable only on an actual payment basis.
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| Further, the IT department has withheld Rs 249 crore as tax for the prior periods. While BHEL has appealed against the move, any decision against it will not impact it fundamentally since the IT department has already withheld the dues.
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| On the other hand, if the decision is in favour of BHEL, it will imply refund of the amount withheld as well as the interest due on the amount.
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| With contributions from Mobis Philipose and Sameer Ranade |
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