Telco struggled on Thursday as concerns swept the counter that a drop in rail freight rates may set off a shift in goods transport from road to rail.

The reckoning saw the scrip of India's largest commercial vehicles maker ease 0.66% to Rs 159 in early trades today. But, in contrast, rival truck maker Ashok Leyland edged up 0.4% to Rs 101. Around 47,000 Telco shares were traded in half-an-hour. Ashok Leyland saw volumes of 180 shares.

The cut in rail freights announced by Railway minister Nitish Kumar in the Railway Budget Wednesday had both the heavy vehicle makers detracting on Wednesday. Telco then eased 0.8% to Rs 160.05 and ALL lost 2% to Rs 100.60.

The two scrips have impressed the market over the last few months as financial performances have proved inspiring on factors like cost reduction and recovery in demand for commercial vehicles.

In the last one month, the combined market cap of 5 LCV/HCV makers rose 4.5% to Rs 6687.56 crore (Rs 66.87 billion).

The current subdued trend in shares of truck makers comes amid concerns that a cut in freight rates by the Railways may result in the shifting of some cargo traffic to the Railways from roadways. The Railways, perhaps, effected the rates reduction to fight stiff competition from rival transporters and as a policy of freight rationalisation. As per the Railway Budget, petrol freight rates will be lowered by 10.7%, while reductions for transporting commodities such as crude oil, chemicals, edible oils and cement will range from 3.7% to 9.5%.

As the corporate sector is already looking for means to cut costs, the reduction in freight rates may make railways transport more appealing, according to analysts.

Improved road conditions thanks to the highway projects has led to improved 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 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