Tata Motors (formerly Telco) recently touched its 52-week high of Rs 292. The stock may be moving up in anticipation of a pick-up in demand for commercial and passenger vehicles thanks to better road infrastructure, good monsoon and easy finance schemes at low interest rates. 

Tata Motors’ sales growth was robust during the quarter to June 2003. Commercial vehicle sales were up at 26,705 units (21,201 units) and that of passenger vehicles grew to 30,118 units (17,556 units). The trend has continued with total sales for July 2003 going up by 38 per cent to 24,995 units. 

The company posted a 43.1 per cent rise in operating income (net of excise) to Rs 2,501 crore during the quarter to June 2003. This was lower than 48 per cent growth in sales volume, which can be explained by sales mix shifting in favour of passenger cars. Passenger cars (Indica and Indigo) prices are lower than that of commercial vehicles. Total expenditure was up by 40.3 per cent to Rs 2,169 crore. Raw material consumption (net of stock variations) shot up by 50 per cent to Rs 1,597 crore as steel prices, a key input, have been firm. Operating profit soared by 65 per cent to Rs 332 crore. OPM grew by 1.7 percentage points to 13.3 per cent. A 33 per cent decline in interest cost to Rs 54 crore further boosted net profit at Rs 100 crore (Rs 28 crore). The interest cost is likely to come down further as the company may retire expensive borrowings through its proposed issue of foreign currency convertible bonds aggregating to $90 million. 

Tata Motors has a 70 per cent market share in medium and heavy commercial vehicles. Exports account for six per cent of the comapny’s vehicles sales. ‘Indica’ and ‘Indigo’, its indigenously developed passenger cars have also received good response. Its recent launch, ‘207 DI’ pick-up truck, with an aggressive publicity campaign, aims to blend the looks of a car with the functions of a utility vehicle. It has also launched a petrol version of its sports-utility vehicle, ‘Safari’. 

Pharma Stocks
Pharma stocks, which have been laggards in the recent rally on bourses, finally shot up on September 8, 2003. The sudden interest in stocks may be attributed to buying across the board from FIIs and domestic investors. Large-cap pharma stocks have already appreciated substantially. Hence, any investment in them may carry risk of a steep fall in the near future if any adverse change takes place in government policy on drugs. Recent failures of Dr Reddy’s molecular research may not have dampened investors’ spirit, but any further failures could affect the sentiment for pharma stocks. 

Moreover, large-cap pharma stocks are now quoting at almost three to four times of their annual turnover based on latest available annual reports. As a result, investors are shifting to mid-cap and small-cap companies, which have not appreciated in line with their peers. 

Pfizer’s market cap of Rs 1,078 crore is 80 per cent higher than its annual sales, aided by a 15 per cent spurt in stock price in a single day. However, the rise in Pfizer’s market cap may be justified as the news of its merger with Parke Davis broke out on Monday. Market cap of JB Chemicals is 60 per cent higher than its annual sales. Here again, this premium may be due to the company entering into an exclusive marketing tie up with Lannett Company Inc. USA for marketing of its ciprofloxacin. 

However, few pharma companies that have not been showing high growth have also participated in the rally. Merck earns a major share of its turnover from vitamins segment. But the segment has been a victim of slow growth. Still, its market cap of Rs 568 crore is 56 per cent more than its annual sales.