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Sunday, Apr 14, 2002

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Swaraj Mazda: Hold

S. Muralidhar

SWARAJ Mazda Ltd (SML), the third largest player in the light commercial vehicles (LCV) market, has been steadily climbing out of a slow growth spiral for the past three years. The just ended financial year could see the company closing its books with one of the best performances all round in recent years.

SML is expected to report a 22 per cent increase in volumes sales during 2001-02.

From a total of 5,070 vehicles sold in the previous year, SML sold over 6,170 vehicles in the just ended fiscal — 31 per cent of which was sold in the quarter ended March 2002.

The company is also said to have exported about 350 LCVs during the year, compared to exports of about 225 vehicles in 2000-01.

For the nine months period ended December 2001, the company reported operating revenues of Rs 198.74 crore and a net profit of Rs 3.50 crore.

Given the surge in sales in the fourth quarter of 2001-02, it can be safely estimated that for 2001-02, the net profit is likely to be about Rs 5-5.25 crore, representing an increase of over 25 per cent from the previous year's net profit of Rs 3.99 crore.

The per share earnings would then be Rs 5-5.25. The stock is now trading at multiple of 10 times the expected earnings for the year. Shareholders of SML can continue to hold the stock at the current level of Rs 55 and pare exposures after the disclosure of performance for the quarter ended March 2002.

Industry sources estimate that the total LCV market would have shrunk from about 52,000 units in 2000-01 to about 45,000 units in 2001-02.

Of the major LCV manufacturers, only two reported a jump in sales — SML and Eicher Motors Ltd. Again, of these two, SML's growth in sales is the most impressive. In contrast, industry leader, Tata Engineering, recorded an over 20 per cent fall in domestic sales volumes during the year under review.

SML was one of the early entrants into the LCV market, but with its traditional emphasis on orders from the Government and the armed forces, the company was unable to create a strong foothold for itself in the industry. Further, with competition from Ashok Leyland's Iveco range of LCVs and from Eicher Motors, the market has witnessed a certain level of saturation in this segment.

Now, SML is planning to shift its focus from Government and emphasise on the retail and institutional segment of the LCV market.

To this end, the company is proposing to overhaul its marketing network, particularly in the South.

The company is also planning to increase production capacity at its Punjab plant to 8,000 vehicles on a single shift basis later this year. It is currently working at capacity level of about 6,500 units per annum on a single shift basis. By 2003-04, SML hopes to raise the capacity to15,000 vehicles per annum on a double shift basis.

SML continues to service the Government's requirements and the armed forces. Company officials say that orders from the Government will be sustained during the next few years.

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