At a meeting held with analysts and fund managers on Friday, Ratan Tata discussed the state of affairs of the commercial vehicles market. The reason cited for the drop in market share was that Telco's new trucks were fitted with new high-quality slightly-expensive Cummin engines.

In the long term, Tata told analysts, it is very good to have Cummins engines because it is always quality that wins in the end and not the price. In the short run, Ashok Leyland may have been able to gain market share but in the long term it is Telco which will benefit if the others do not catch up.

According to analysts who attended the meeting, Tata offered two comments on the issue: that Telco will still persistwith qualitatively-improved Cummins engines in the long-term interest of customers, and that the company had already reacted to the problem with a price cut, leading to improved offtake in the second half, including repeat orders. The price cut was engineered through strategic indigenisation, Tata is believed to have told analysts.

The Tata group chairman said that the company had actually stepped up output in the last few months based on falling inventory levels of dealers. The other reason was a seasonal demand spurt, as well as a government decision to prepone its purchase schedule. Usually, these truck purchases, mostly for the army, are scheduled in the first quarter of the next calendar year, but they were advanced by a quarter this year to pump prime the economy.

Citing the example of Maruti 800, Tata said that even Maruti Udyog, which was earlier producing around 1,300 cars per day, was producing 40 per cent less now. He said that the scenario for the small-car segment is also not that good.

Hesaid Telco will produce 10,000 units of "Indica" passenger cars in 1998-99, followed by 40,000 and 60,000 units in the next two fiscal years.

Tata said that orders from the defence were also flowing in with Taco, the auto-components holding company, considering tie-ups with world-class leaders in the sector.

According to fund managers, the Telco scrip is set to bottom out and should show improvement in the next 3-6 months on improved volumes. With better economic outlook next year the growth should pick up, they added.

If the freight rates have to improve then for that economic growth, in terms of GDP and IIP, should take place leading to increased transportation leading to improved offtake of vehicles, said the fund manager.