K Sridharan, CFO, Ashok Leyland said the interest rate hike has affected sentiment as well as finance availability and cost of funding.

He does not expect double-digit sales growth this year. Sridharan sees a 100-200 bps increase in market share.

Excerpts from CNBC-TV18’s exclusive interview with Ashok Leyland:

Q: Can you take us through the experience of the company in July itself? What accounted for 11-12% sales growth that you posted? Was it exports? Did you see any inventory buildup?

A: We have registered a growth in all pockets both in the passenger side as well as in exports. In fact the growth has been very significant on the exports front where overall exports registered about a 30% growth.

On the passenger side, though we have registered a growth, month-over-month type of an improvement or decline is not a factor to go by. To give you guidance, the overall passenger market is robust and we have enough shares of orders from the State Transport Undertakings (STUs).

Depending upon the deliveries, we could have a drop month-over-month. This time in July, we had a significant jump because we delivered in the South as well as in the Northern STUs that enabled us to gain significant increase in market share.

But overall, sentiment has been affected because of the interest rates and all that. The last increase in rates has affected demand. We are keeping our fingers crossed in terms of how growth for the full-year would turn out.

Q: Although your July sales look good YoY, month-on-month it is lower than what you posted in June. In June you posted over 7,000 vehicle sales. You have not made it to 7,000 in July. Are pressures of interest rates already telling on the company? What kind of YoY sales growth are you expecting for FY09? What will be the impact on your margins?

A: The increase in interest rates, particularly the last one that happened, has affected sentiment and availability of finance as well as the cost of funding for our operators. From that point of view, we don’t expect any big double-digit growth in the current year. We are hoping for a robust single-digit growth both for the industry and for Ashok Leyland. We are hoping for at least about 100-200 bps improvement in our market share, which is currently above 29%. We are expecting that to touch 30%.

So, we need to wait and watch. Hopefully on the inflation front, it should help the monetary authorities to ease the strain.

Q: Could we look at 8-9% growth in sales in the current year?

A: It is very difficult for me to put a number. It would be robust growth both for the industry and for Leyland.

Q: Are you beginning to see your margin picture stabilising or are pressures continuing to increase? What might end up in terms of margins?

A: We are targeting to maintain our earlier margin levels of around 10%. There has been a strain on margins in the first quarter because of steel price increases, which we have offset by pricing action. As it stands now, based on whatever cost increases that have been done, we have more or less tried to cover it with pricing action.

But if further increases happen in steel prices, which people are talking about, then we need to again seek pricing action because we cannot afford to have any further erosion in our margins.

Q: There was a lot of talk of inventory buildup. Had there been any inventory buildup in the last one-two months?

A: We had our share of inventory buildup. It crossed 11,000 vehicles, which is a very big jump. These things can be easily corrected and we can take due action for aligning it as well.