Tata Engg: A good pick-up

Raghuvir Srinivasan

THE Tata Engineering stock can be considered for acquisition by investors at the current market price of Rs 67. The downside from the present level appears minimal even as there is some encouraging news on the offtake of its commercial vehicles and passenger cars.

The current price has also discounted the ensuing rights offering of the company which means that there are no immediate reasons for a further erosion in its value in the near term due to company specific factors. But there may be some uncertainty next week as the broad markets may respond to trends in the US markets.

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There appears to be good news from the commercial vehicles market at long last for the beleaguered company. Tata Engineering has witnessed an upsurge in the offtake of its heavy commercial vehicles (HCV) for the second month in succession. HCV sales volumes in August 2001 was up 26 per cent compared to the same month last year. A similar trend is also visible in sales of passenger cars which rose by 22 per cent in August 2001 with Indica alone registering a growth of 49 per cent in its volumes compared to August 2000.

Encouraging is the fact that Tata Engineering is not the only one to register a rise in commercial vehicle sales. Competitor Ashok Leyland has also reported a rise in its volumes for August 2001. This points to the fact that there could be a revival on in the commercial vehicles industry. Two straight months of rise is not proof enough of a revival but it is certainly encouraging given the prevailing conditions in the market.

The Indica also seems to be stabilising in the market-place as evident from the improvement in its volumes in recent months. The introduction of the V2 diesel in January 2001 proved to be the turning point for the Indica.

Tata Engineering has recently launched the petrol version of the V2 following up on the success of the diesel V2. A successful launch could transform the fortunes of Tata Engineering. Slated for future launch are a three-box sedan version of the Indica and the mid-size saloon, Magna.

The company has lined up a rights offering to fund its long-term activities. Acknowledging the current state of the market, Tata Engineering dropped the size of the offering to Rs 978.65 crore from the earlier Rs 1,228-1,382 crore and made the terms attractive. With a smaller offer size, the dilution in the equity capital will be considerably lower than before.

Assuming that the turnaround in the commercial vehicles market sustains, there could be some potential in the Tata Engineering stock. Even a move into the Rs 80-90 band in the next six months would translate into an appreciation of around 25 per cent from current levels, which would be good considering the present state of the markets.