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This author in the past has been trenchant in its criticism of Tata Engg’s performance and has advocated investors to stay away from the stock. But are the times changing for Tata Engg? While there is no confirmations yet (and there never will be till the stock price is up 50% from its present levels), it is worth looking at certain pointers and to delve into history a bit. First the pointers:

• Indica car sales have picked up even as other car manufacturers are struggling. The company has been reporting growth of about 50% yoy for the last couple of months inspite of market conditions that are sluggish. Yes, the company will not hit targets of 90,000 which it set for itself a couple of years back but the performance is commendable. The launch of V2 seems to have done the trick. And customer feedback that we have gathered so far is extremely encouraging. The achievement is more commendable when you see that the least discount among comparable cars is being given on Indica by dealers. There is no 0% financing available on Indica cars. These two obviously point to a pull factor for Indica cars that is clearly missing in case of competitors.

• On a low base, sales of Commercial Vehicles (CV) is also showing a marginal uptrend. Couple of factors may push up sales of CVs – firstly, the shift to higher tonnage, multi-axle vehicles will ensure higher sales. Secondly, as road quality improves (and there are reports of this from across the country), goods traffic will shift favorably to road from rail.

• Lastly, and most importantly, the government in its attempt to kick start the economy may announce phasing out of vehicles above a certain age. This may also result in a demand boost.

Does this mean all of Tata Engg’s problems are over? No. The company has not yet been successful in de-integrating its production and given the current global environment it is unlikely that it will find partners at a price that it is looking for. But incremental performance going forward would be better. If the above government policies take effect, then the performance of the company would sharply improve. Moreover, the Tata group has indicated that it will hike its stake in the company though the creeping acquisition route. With the creeping acquisition limit being doubled to 10% by SEBI, expect more aggressive purchases by the group to shore up its stake. All in all at a price of Rs65-70, the stock seems a good investment bet for the next twelve months.

Now let me delve into history a bit. In August 1987 I had joined Tata Engg (then known as Telco) as a fresh-eyed Engineer. In those months the plant that was used to working in three shifts was working in one shift only – yes, the recession had taken a heavy toll. Many employees advised me to leave Telco and go abroad for further studies. I was told Telco has no future – in FY87 the company had reported a meager profit of Rs29.3m and that too by selling scrap! That same year Telco came up with an issue of FCDs (conversion price Rs225 for a Rs100 share) and obviously there were no takers. So every departmental head had a target so that every employee applied for the debentures. Concessional loans were being given but we as trainees were not eligible for the same. Anyway who was interested!

Then a friend from Bombay (rather his father) urged us to buy. We did not have the money and so we approached the training department for loans. Our request was forwarded to the HR department and form thereon to the powers that be. Given the poor response to the issue even from the employees (I know of many who applied for only 1 FCD), our request was granted. So four GETs (Graduate Engineer Trainees) in our batch availed the loan and subscribed to the debentures. This has been one of my best (if not the best) investment decision. Since then I do not believe Telco has tapped the domestic market. The share price went to a high of Rs550 (a Rs10 share after 1:1 bonus). I do believe the present right offering is offering similar opportunity once again. If you believe that Tata Engg as a company has a future and not a basket case, then this may just be the time to buy. Will history repeat itself? I believe it will. But do not buy for one day, three weeks or three months – buy for three or five years. And if in three months the stock is up 50%, then Sell.

5Paisa Team

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