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Deepak Singh Tanwar
A sharp rally on Punjab Tractors (PTL) counter is fully justified. Within a period of five trading sessions, the stock has appreciated by more than 15 per cent and the weekly volumes have been at an all-time high. The company's performance has been once again above the industry average. Not only the performance has been excellent, it has also managed to record the highest sales during the third quarter.
During the second quarter, the company's sales growth had slowed down. It had recorded a sales of 10,514 tractors, down by 12 per cent from the first quarter's sales of 12,008. However, the third quarter's figure are not only above the second quarter figure but have also surpassed the first quarter sales. During the third quarter, it has recorded a volume of 12,182 units.
Overall, for the nine months, as far as the volume growth is concerned, the company is far ahead of its competitors. While PTL recorded a volume growth of 20.1 per cent during 1998-99, Mahindra & Mahindra's volume grew by 2.2 per cent,Eicher showed a growth of 5 per cent. HMT and Escorts however showed a negative volume growth of 10.4 per cent and 13.7 per cent respectively.
For PTL, with an impressive volume growth, it has grabbed the number two position from Escorts Tractors. The latter has now been placed at number three as far as the volumes are concerned. In terms of marketshare, the company has grabbed 18.5 per cent. M&M has the highest portion of 26.9 per cent. Escorts is at number three with a 16.8 per cent marketshare.
Besides volume growth, PTL has also done exceedingly well on the operational levels. Operating profit margins during the third quarter stood at 19.10 per cent--much higher than second quarter's 17.69 per cent and first quarter's 17.31 per cent. Higher volumes and realisations, besides stringent cost control, have played their role. Net profit during the first nine months grew by 40 per cent to Rs 89.70 crore.
The future outlook without any doubt is positive simply because it posseses the ability to performbetter than the industry and has an edge over its competitors. In fact, in a scenario when the other players showed a negative volume growth, PTL has managed to post a 20.1 per cent growth. If PTL's sales are kept aside, during the first nine month of 1998-99, the tractor industry has shown a sales of 152,969 units--down by 0.53 per cent from previous year's figure of 153,782 units.
The track record simply points towards a positive outlook. Although the industry has witnessed an increase in capacities, growth will not be as bad as it was this year. Even if it does not materialise, PTL with its excellent asset untilisation and strong presence in the western market, is competitive enough to perform better than the industry. According to analysts, the company is expected to close the year with an EPS of more than Rs 63.
On the expected earnings, the company gets a discounting of around 15. In better times, the discounting should go up further.
Not only the fundamentals, but the technical position of thestock has also strengthened. With the recent rally, the stock has entered a new bull territory. This is an extremely bullish sign and hints at a new bull run.
Swaraj Engines
Swaraj Engines' (SEL) performance is nothing but a reflection of Punjab Tractors' working. It supplies the engines fitted onto tractors manufactured by PTL. In fact, at Rs 86.51 crore, sales growth at SEL has been higher at 50 per cent during the first nine months. Higher volumes as a result of additional capacity has helped to achieve higher growth. Margins on the operational level have also improved from 17.87 per cent to 19.44 per cent. At Rs 10.45 crore, net profit growth has been lower at 43.15 per cent mainly on account of higher interest, depreciation, and tax provision. Being the sole supplier to PTL, the company's performance will continue to be linked with PTL.
SEL's price pattern is also identical to PTL and has followed it in the latest rally. The price multiples for SEL, however, is higher than PTL. SEL getsa discounting of 17, marginally higher than PTL's 16.
Since the promoters for both these companies are same, and SEL sells all its production to PTL, a merger makes good sense. A merger can boost shareholders' value as after the merger PTL can get higher discounting.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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