Telco moved lower on Tuesday on a general weakness in the market and a particularly dull trend among vehicles makers.

The scrip of the car and commercial vehicles maker edged lower 2% to Rs 158.75 on BSE in early afternoon trades. Profit taking has taken hold of the counter despite the budget proving a boon for truck and carmakers in general. The stock has seen a see-saw trend ever since staging a strong rally from its late September 2002 low of Rs 128.35.

As per market talk, the current selling in Telco has been prompted by domestic mutual fund Birla Sun Life. Volumes on the counter, however, were modest 320,000 shares on BSE.

The 2003-2004 Union Budget has proved very favourable for Telco, though. The major benefit has been the slashing of excise duty on passenger cars and utility vehicles from 32% to 24%. This is expected to bring down the prices of cars by 6-8%, say analysts.

Telco has already announced price cuts for its vehicles - Rs 27,000 on the Sumo and Rs 53,000 on the Safari. The cut in prices of cars and UVs follows an excise duty cut, and is aimed at spurring demand, particularly in the car segment, which is price sensitive. "We believe that price cuts offered by both car and MUV manufacturers are likely to improve demand growth in FY 2003-04. This, coupled with the implementation of VAT and reduction in duties on other key inputs on tyres and HR sheets is likely to contribute to enhancement of operating profitability for most auto majors," says a budget note by a local brokerage.

The peak import duty on HR sheets has been cut to 25% from 30%. This should also augur well for the auto sector in that there may not be a fresh hike in prices of HR sheets which is a raw material in the auto sector. Additionally, there has been a cut in excise duty on tyres from 32% to 24%

Telco will be a major beneficiary as its cars Indica and Indigo are sold as value for money products, and, a reduction in prices, will make the even more desirable.

Additionally, Telco is also seen benefit from the infrastructure thrust in the budget. The government has set aside Rs 40,000 crore (Rs 400 billion) for new road projects. This is expected to further generate volumes according to analysts.

With a view to incentivise the inhouse bus body building activity by commercial vehicle manufacturers, the budget has imposed a charge of Rs 10,000 per chasis in addition to 16% excise duty if manufactured outside. This is considered an added boon to truck and bus makers like Telco and Ashok Leyland.

Improved road conditions, thanks to the highway projects, has led to increased demand for trucks in the last few months benefiting companies like Telco and Ashok Leyland. The demand has been driven mainly by greater tonnage multi-axle vehicles that have higher operating efficiency.

The commercial vehicle segment comprising medium and heavy commercial vehicles and and light commercial vehicles has registered a 35% growth in domestic sales during the month of January 2003. A total of 18,650 vehicles have been sold in the domestic market during the month. Realisation of pent-up demand and highway projects across the country continued to be the main reasons behind this growth. This was backed by improvement in movement of commodities and consumables on the back of economic recovery.

For the first ten months (April to January) of the current year, the CV segment registered a 33% growth in domestic sales to 149,506 units . Commercial vehicles currently attract an excise duty of 16%. Analysts expect the duty to remain unchanged in the forthcoming Union Budget.

BSE code: 500570