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Tuesday, Oct 29, 2002

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Corporate Results - HCV/LCV/Tractors
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Drought ploughs into Punjab Tractors net

S. Muralidhar

PUNJAB Tractors Ltd's (PTL) drastic fall in profits for the second quarter of this fiscal in comparison to the last has not come as a surprise. On the one hand, the company's profitability is under pressure from falling offtake and consequently lower revenues due, in large measure, to the ongoing drought in many states. On other hand, the company is also having to the face the necessity to correct its inventory pile up with dealers.

The tractor industry as a whole is having to face up to a bad year this fiscal. The drag in sales volumes has been present for the past four years, but is hurting even more this year. The fall in volumes for the full year could be as high as 16 per cent. The drought and its effect on farm incomes have led to a fall in farm incomes, as a result retail sales of tractors have been hit. PTL has, along with many other industry players, witnessed a steady rise in sales to its dealers, while its dealer-level (retail) sales volumes have actually been sliding. This year's wholesale and retail sales have not been much different for PTL, indicating an attempt by the company to correct its inventory positions.

Although there is no immediate confirmation available from the company, industry sources said PTL's wholesale and dealer-level sales would be in region of about 12,500 to 13,000 units for the six months ended September 2002, the difference between the two volumes during this period being marginal. However, last year the difference between wholesale and dealer-level sales for PTL was about 1,600 units.

For the second quarter, PTL has reported a 44 per cent fall in sales and a 65 per cent fall in profits compared to the corresponding year-ago period. The company's operating profit margin has also fallen from about 21.34 per cent to about 17.81 per cent. PTL's earnings per share for the half-year ended September 2002 works out to Rs 4.1 (not annualised).

The fall in the company's profits comes at a time when the Punjab State Industrial Development Corporation (PSIDC), PTL's largest single shareholder, is working towards disinvesting its 23.5 per cent stake in the tractor company.

The financial performance of the company is likely to affect its valuation.

The PTL stock slid by over 5 per cent on Monday to close at Rs 112.75 on the Bombay Stock Exchange.

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