The higher excise levy to 12% proposed in the Budget was expected to impact many auto companies, including Ashok Leyland.
The higher excise levy to 12% proposed in the Budget was expected to impact many auto companies, including Ashok Leyland . However, managing director Vinod Dasari told CNBC-TV18 the excise duty is a blessing in disguise for the company.
The auto major’s Pantnagar plant which rolls out heavy commercial vehicles falls in an excise-free zone. The Pantnagar unit accounts for one-fourth of its total production. “We save Rs 20,000 more per vehicle for the 2% increase in excise duty that has happened,” says Dasari. The impact of the hike is expected to be Rs 200 crore positive for Ashok Leyland. As of now, the company has no plans on passing the overall 2% increase to its customers.
Excise duty on commercial vehicles or CV (chassis) has been increased from 10% to 15%, compared to expectations of an increase to 12%. The company, however, is expecting to pass on the duty hike on chassis next week.
For FY13, Ashok Leyland is looking at a volume growth of 7-8%.
Below is an edited transcript. for more.
Q: You had some duty increases. Do you think you will have to raise prices? Will you be able to pass them down or you are choosing not to?
A: At the moment we are not passing them on but this duty increase and how it impacts Ashok Leyland has somehow gotten mixed up and not communicated properly. Ashok Leyland is the only company with a plant for making heavy commercial vehicles in Pantnagar that we started two years ago. We have manufactured over 40,000 vehicles.
In Pantnagar, there is no excise duty. So if excise duty goes up it is a blessing in disguise for us. We save Rs 20,000 more per vehicle for the 2% increase in excise duty that has happened. So somehow this has been mis-communicated in the media that it will impact Ashok Leyland but in a way it is a blessing in disguise.
As far as the impact of the excise duty increase on the market itself I talked to many of my transporter friends and our customers and they said - yes, in the short run the excise duty impact will be passed on by the OEMs to us and our customers say we will pass it on to the end customers. However, they said - if the excise duty were to be dropped to even 0% it is not that they will go out and run and buy a vehicle tomorrow.
The same thing applies the other way around too that if the excise duty goes up it is not like they will suddenly stop buying vehicles. It depends more on the primary sectors that they serve. If there is load availability, if there is transport availability they will buy vehicles. Operating economics is something that we will work with our customers to manage and to make sure that they are profitable. But this increase or decrease in excise duty is not going to have an impact on the market per se.
The market will be driven more by positive things like much more infrastructure spends being announced in the Budget. If mining also starts it will have a significant impact otherwise in general our industry runs with the GDP and if the GDP continues to do well our industry will do well and in that Ashok Leyland will do better because of the excise duty benefit that we get from Pantnagar specifically.
Ashok Leyland stock price
On September 17, 2014, Ashok Leyland closed at Rs 38.80, down Rs 0.5, or 1.27 percent. The 52-week high of the share was Rs 42.65 and the 52-week low was Rs 13.20.
The company's trailing 12-month (TTM) EPS was at Rs 0.43 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 90.23. The latest book value of the company is Rs 15.69 per share. At current value, the price-to-book value of the company is 2.47.
READ MORE ON Ashok Leyland, Pantnagar plant, excise duty, auto companies, commercial vehicles, chassis, Vinod Dasari
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