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Raghuvir Srinivasan

IT is an emphatic return to the dividend list for Tata Engineering after a gap of two years. The company's 2002-03 numbers underline the dramatic turnaround in its performance in the last two years.

Much of the good performance can be attributed to the favourable trends in the commercial vehicles industry, which anchors Tata Engineering's business.

Yet, the impact of the change in fortunes of the passenger car project on the company's performance cannot be ignored.

The success of the Indica and now the Indigo are critical factors that underpin its performance in 2002-03.

The fourth quarter ended March 31, 2003 has seen an 87 per cent rise in earnings before extraordinary items and tax to Rs 238.38 crore. This is on a topline growth of just 17 per cent to Rs 3,588.27 crore.

Tata Engineering has improved its operational efficiencies in notable fashion. This is reflected in the operating margin, which has risen to 10.86 per cent from 9.59 per cent in the corresponding quarter of 2001-02.

Staff cost was down by 22 per cent during the quarter, clearly the result of a reduction in the workforce through VRS.

Similarly, gross interest fell by 29 per cent to Rs 72.24 crore during the quarter despite a significant rise in inventory levels both for the quarter and the whole year. The healthy cash flows have obviously been a factor in the lowering of finance costs. The impact of a deferred tax credit last year and a big provision this year conveys the impression that post-tax earnings are down for the fourth quarter. Besides, the tax credit accounted in the fourth quarter last year pertained to the entire year, which means that the earnings figures are not comparable.

Going forward, the two factors that hold the key to Tata Engineering's performance in the first half of the current fiscal are the monsoon and the Indigo's performance.

The former will dictate the fortunes for the commercial vehicles business while the Indigo is critical to the company's fortunes in the passenger cars business. Initial acceptance of the Indigo has been good but the next six months will clearly set out whether the model is a winner. Tata Engineering has also lined up other launches in the passenger car segment that includes an estate version of the Indica. While it is premature to even begin to predict the impact of the monsoon on the commercial vehicles business, it can safely be said that a repeat of the last year would definitely dampen sentiment for the industry. Whichever way one looks at it, the first half of this fiscal will prove to be a crucial one for Tata Engineering.

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