Ashok Leyland

It is with great pleasure that I welcome you to
 this fifty-eighth Annual General Meeting of the 
 Company. The Report of the Directors and the audited 
 results for the year ended March 31, 2007 have been 
 with you for sometime; with your permission, 
 I shall take them as read.
 
 In a presentation to be made by the Managing 
 Director, the highlights of the Company’s performance 
 during 2006-07 will be shared with you. It has 
 been another year of all-round growth and new 
 records, one of them being the two billion dollar 
 mark in turnover. This accelerated rate of growth 
 reflects both the potential of the industry segment 
 that we are in and our ability to benefit from it. 
 In this context, I am happy that in each of the 
 last two years, our sales volume grew at rates higher 
 than for the industry. 
 
 Commercial Vehicle Business
 
 The demand for commercial vehicles during 2006-07 
 far exceeded all expectations and predictions. 
 Even the continuing buoyancy in the Indian economy, 
 with a high 9.4% GDP growth, does not adequately 
 explain the high demand growth for commercial vehicles 
 for the sixth consecutive growth year. In retrospect, 
 it is evident that the Supreme Court’s directive of 
 December 2005, on strict enforcement of payload 
 restrictions, had brought out the dormant demand 
 which spilt over to the financial year under review 
 and weakened only in early 2007. Load generating sectors 
 fared well collectively, including the construction of 
 modern road network. It is significant that this 
 mammoth and seminal infrastructure project has only 
 reached one-third of the envisaged target and will 
 continue to have a favourable influence on the 
 commercial vehicle industry for many more years 
 to come. 
 
 While India’s economic growth continues unabated, 
 hardening of interest rates has started to impact 
 demand for commercial vehicles. Total industry volume 
 for medium and heavy duty vehicles is lower by 3% 
 in the first three months of the current year, though 
 your Company’s sales volume is up 6%. Indices such 
 as load availability, freight rates and repayments 
 on vehicle loans are healthy enough to suggest moderate 
 growth in the current year. Sentiments have a great 
 say in an industry such as ours – and interest rates 
 have a great effect on sentiments and, therefore, 
 need to be closely watched. 
 
 Three dimensions of growth
 1.Capacity expansion 
 
 From under 30,000 vehicles in 2001-02, to over 
 83,000 vehicles in 2006-07, our operations have 
 gained in size, supported by phased capacity expansion. 
 One significant feature of this expansion phase 
 has been that capacities have been added with 
 incremental investments coupled with de-bottlenecking 
 and improved productivity and efficiencies. 
 
 Looking beyond the current slowdown and confident 
 of growing with the industry, the Company is on 
 course to enhance production capacity from the 
 present 84,000 to 100,000 vehicles in the current year 
 itself. 
 
 To keep up with the pace of growth, work has begun 
 for a state-of-the-art, integrated manufacturing plant 
 near Pant Nagar in Uttarakhand. An investment of 
 Rs 1,000 crores will create the assembly and cab 
 facilities for 25,000 vehicles annually in the first 
 phase, scheduled to go on stream in 2008-09. Phase II, 
 scheduled to be operational before March 2010, will 
 yield an enhanced total annual capacity of 50,000 
 vehicles at this location. There are also plans to 
 put up yet another manufacturing unit in the next 
 two years. 
 
 This is part of the expansion programme that has 
 been drawn up in line with the Company’s vision to 
 consolidate its presence in the domestic market. 
 It also reflects the vision of the Hinduja Group for 
 your Company – and the Group’s total, unstinted support 
 to actualize it. 
 
 Concomitant with this growth agenda is the continuous 
 strengthening of our in-house R&D capabilities through
 higher investments in infrastructure and manpower.
 Your Company’s R&D spend has been steadily on the rise 
 and was 1.9% of turnover in 2006-07. You will be happy 
 to know that the development centres for vehicles and 
 engines, located near Chennai and at Hosur, have 
 state-of-the-art facilities including the six poster 
 indoor vehicle test facility and the transient cycle 
 engine dynamometer, both being the first of their kind 
 in the Indian commercial vehicle industry. The present 
 talent-pool of 500 engineers will grow to 1,200 in 
 three years. These are critical steps being taken 
 by your Company towards self-sufficiency. 
 
 I am happy that such continuous focus on technology 
 and development is already producing results in the 
 form of products and aggregates that have given us a 
 competitive edge. Through the Annual Report for 2006-07 
 you are aware of the unique front-engine semi-low-floor 
 bus and the fuel-efficient BS 2 -compliant engine, both 
 developed in-house and well received by the market.
 
 The current year will see the launch of a range 
 of application-specific trucks and buses which 
 reflect our in-house development capabilities
 as well as the appropriateness of our technology 
 partnerships. High performance capabilities and 
 modern styling are common features of this range. 
 
 2.Globalization
 
 At the last AGM, I had referred to the acquisition
 of IVECO’s stake in LRLIH by the Hinduja Group as 
 a corollary to the Company’s strategic priorities
 in the changed global scenario. This change in 
 ownership has given the Company the facility to 
 pursue growth in what is best for the Company in 
 terms of market and technology. 
 
 The first major step has been the acquisition 
 of the Truck Business Unit of AVIA, since renamed 
 AVIA Ashok Leyland Motors (AALM). The Prague-based 
 manufacturing unit along with its popular AVIA brand 
 opens for your Company a significant window to the 
 developed markets of Europe besides access to modern, 
 Euro 4 compliant vehicle technology. Organizational 
 rebuilding, cost rationalization and development of 
 marketing infrastructure are on course, so as to 
 scale up the AALM operations to its full potential.
 
 Your Company has traditionally enjoyed a dominant
 market share in the bus market in the Gulf region, 
 with annual exports exceeding 1,000 vehicles. 
 In a move that takes the Company closer to this 
 growing market, work has commenced to set up an 
 integrated chassis and bus assembly plant with a
 capacity to initially produce 1,000 buses annually.
 Backed by an investment of about Rs 40 crores, the 
 activities are scheduled to commence by the end 
 of the current financial year. 
 
 Globalization breaks the traditional barriers
 of national boundaries and allows the most 
 competitive value addition, thus rewarding and 
 enhancing efficiencies. The strengths of the 
 Company in terms of its close and longstanding 
 business relationship with India's auto component 
 sector have been channelised into the Component 
 Business Group, for sourcing out of India, to Europe, 
 the Middle East and the North American after-market sector. 
 Business prospects are good for cast-iron and 
 die-cast aluminum products.
 
 Even as we pursue global markets, the Company 
 has been benefitting through global sourcing. 
 To gain from the significant cost benefits 
 in sourcing components and materials from China, 
 your Company has already established an office 
 in Shanghai. 
 
 3.Diversification into Knowledge Business
 
 Your Company and its associate companies and 
 businesses, collectively, are seeking to broaden 
 the scope of operations in their traditional domains, 
 increasingly occupying adjacent domains. The high 
 potential of the automotive sector and the 
 opportunities from globalization converge to 
 offer tremendous opportunities as never before. 
 Management's responses to these opportunities 
 have been based on the available technical/managerial 
 capabilities and the potential for increasing 
 shareholder value. 
 
 One such response is your Company’s entry into 
 the business of aluminum high-pressure die-casting 
 (HPDC), in a joint venture with ALTEAMS of Finland. 
 This complements the capacities for grey iron castings 
 which Ennore Foundries are currently setting up, at a 
 greenfield site, that will take their total annual 
 capacity to over 120,000 tonnes. The joint venture 
 recognises the already perceivable shift in favour 
 of HPDC, in the auto sector. The expertise of ALTEAMS 
 in the telecommunication industry, serving as it does 
 the top cell phone manufacturers of the world who 
 have set up operations in India, gives the joint 
 venture the stability through a diversified portfolio 
 serving two high growth sectors.
 
 The new area of knowledge products has also been 
 engaging the Company's attention. During the past 
 decade, India has witnessed a high growth rate, 
 thanks to investment flows attracted by cost 
 advantages - a leadership position for the 
 country and Indian Companies, based only on 
 cost arbitrage, I believe cannot be sustainable. 
 Technology self-sufficiency and leadership in 
 creation of knowledge products are essential to 
 sustain the competitive advantage of Indian 
 industries in the global marketplace. Your Company 
 has the advantage of domain knowledge including
 market insight and engineering capabilities. 
 Two of the Company's strategic moves in recent 
 months stem from our aspirations to seize global 
 opportunities in knowledge products.
 
 One of them is your Company’s recent agreement for 
 Joint Venture collaboration with Siemens VDO Automotive
 (SVDO), a global leader in automotive infotronics. 
 SVDO brings its formidable technology strength to 
 this 50-50 joint venture which has been set up to 
 design, develop and adapt infotronics products and 
 services for automotive customers. This joint 
 venture recognizes the global trend of increasing 
 content of infotronics – the coming together of IT, 
 electronics and communication – in vehicles, which 
 is already being witnessed in the Indian car segment. 
 With the introduction of computer-aided fuel injection
 in some of the vehicles last year, infotronics content 
 is expected to also grow significantly in the 
 commercial vehicle segment. This joint venture 
 will cater to the requirements of Ashok Leyland 
 vehicles and available opportunities with other 
 vehicle manufactures in India and overseas.