Ashok Leyland expects to outperform the rest of the auto sector this year, but sees growth coming in lower than last year.
Ashok Leyland expects to outperform the rest of the auto sector this year, but sees growth coming in lower than last year. Speaking to CNBC-TV18, CFO K Sridharan says that volumes will pick up due to recovery in some strong pockets. “Volumes in our tractor trailers, our tipper segment and more particularly in the southern market are likely to show trends of positive growth,” he said.
He adds that they expect to improve their market share going forward.
In terms of growth Sridharan sees no signs of any slackening. “Fundamentals like the availability of freight or the freight rates per se are showing no sign of slackening, so I do believe that the industry should be able to register a growth,” he explained. However, he adds that growth will be slower than last years 8-9%.
Below is an edited transcript of his interview with Mitali Mukherjee. Also watch the accompanying video.
Q: What is your takeaway been of how limp the reaction from some of the banks has been to what the Reserve Bank announced? Are you surprised at how little the transmission has been in terms of actual rate cuts?
A: Yes the surprising element in the whole rate cut by RBI and consequential action by the banks is that some of them have only moderated their spreads which is not expected. They should on the contrary cut the base rate itself. The RBI introduced this base rate concept and the bankers were expected to align the base rates in line with their cost of funds which should be coming down with the repo rate cut by RBI. The moderation of the spread, which actually reflects the credit risk for the borrower as well as the industry outlook in which the borrower operates, is not supposed to be touched.
So we expect the banking system to get back to the principles of base rate and reduce the base rate accordingly which to the extent it has not happened is a disappointment.
Q: In that case, are you expecting to see any change at all in terms of loan appetite for your space?
A: The loan appetite should be increasing independent of the base rate purely because the availability of funds in the market should be improving. Post the downgrade by S&P, one would expect the RBI to step up the availability of funds in the local market and corporates and would be shifting their focus from external market to the domestic market for borrowing.
Q: SIAM forecast a slippage in this series and said things might have peaked out in Q4. Is that an observation that you share?
A: It’s too early for me to comment on that. I would only say that some of the fundamentals like the availability of freight or the freight rates per se are showing no sign of slackening. So I do believe that the industry should be able to register a growth.
Q: Would you say 9-11% is too conservative for FY13 or that is a reasonable range to work with for the series?
A: It’s very difficult for me to guess a number there, but all I can say is that it may not be of the high of 8-9% achieved in 11-12.
Q: How is market share doing for Ashok Leyland itself because there was a recovery come March? What is that you have got your market share up to at this point?
A: We hope that the revival in some of the strong pockets where we have traditionally got superior products and the customer preferences, whether it is in tractor trailers or in our tipper segment and more particularly in the southern market, all are likely to show trends of positive growth. So we expect to improve our market share now.
Q: So already better than the 24% that the market knows of?
A: Yes we should be improving. It’s again too early for me to guess what it would be for 12-13.
Q: One of the products that the market has been excited about is the Dost. How much has the run rate upped to, because we believe there is now very serous competition as well within that space?
A: We have a run rate of almost 2,500-3,000. We have got a backlog or orders going above 6,000 vehicles at any point of time. So we do believe that this run rate will further improve and this is in spite of the price increase that we affected in April.
While the competition is there, the product performance should demonstrate that we will gain and consolidate our market share in this space.
Q: Given the fact that you hope to see a recovery, especially in key markets like Karnataka, you must have some target for calendar year itself in terms of units you hope to sell. What are you working with right now just for the year 12?
A: It’s very too early for me to share anything on that ground. All I can only say is that we should definitely be expecting a better growth than what the industry growth expectations, which I mentioned could be lower than what we achieved in 11-12.
Q: Will the year come with any easing up in terms of input cost pressures or will you look price increases through the course of this year?
A: Price increase is a necessity because we do have a backlog in recovery of our cost that we suffered in the last quarter of the last year. We started off the year with plans to have pricing action, but we have deferred it. Anytime in the near future we should be taking the pricing action.